Limited partners are referred to as LPs. 

They invest in venture capital funds.

Just as angel investors make mistakes, so do LPs

Here’s a list of LP investing mistakes:

Not investing consistently.

It’s easy to invest when the market is up and difficult to do so when the market is down.

One of the best times to invest is after the market has dropped.

Investing based on track record alone.

While it’s a good reference point, the returns of a manager can be manipulated.

Treating a venture as an index fund.

While an index fund model can be applied to venture capital, it yields limited returns.

Focusing solely on fees.

The LP receives the return minus the fees.

In some cases, the return may justify the fees.

Ignoring portfolio structure.

LPs should build a diversified portfolio of funds and startups and avoid over-concentration in a sector.

Direct startup investment.

While there may be opportunities that come along, it’s very rare that solo investments will prove out.

Avoid these mistakes in your VC investments.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.