Seven Steps for Raising Money from LPs

David Zhou is a busy guy. 

As the Head of Investor Relations at Alchemist, a San Francisco based venture fund and accelerator focused on enterprise startups, David manages the operation’s limited partner (LP) relationships.

He has plenty to do. Since its founding in 2012, Alchemist has accelerated over 650 startups – including LaunchDarkly, Privacera and MoEngage – that have collectively raised over $3.9 billion in capital. 

On top of his role at Alchemist, David runs the blog Cup of Zhou, which he bills as “weekly investor musings to go with your morning coffee.” He has also launched a podcast devoted to demystifying the LP called Superclusters, on which he interviews some of the biggest names in startups and LPs. 

As you might imagine, we covered a lot of ground when David visited the How I Raised It podcast to discuss what he has learned raising capital for a venture fund. He talks about the importance of cultivating relationships, shares some strategies for connecting with motivated LPs and explores the usefulness and limitations of leveraging logos. 

Raise It Like David: 7 Tips for Success

1. Nurture relationships now

When it comes to making connections, there’s no time like the present.

David abhors interactions that feel overly transactional or impersonal. Instead, he prioritizes personal touches and genuine interest in people and their priorities. 

“We're human beings. We want to be cared for, we want to feel like we're important individuals. This is true for LPs, this is true if you're a founder, this is true for investors you chat with as well,” David explains. 

David credits Mark Suster of Upfront Ventures with introducing him to a Zig Ziglar quote that has become a mantra for him: “People don't care how much you know until they know how much you care.”

Take the time to foster relationships with people now, even if you’re not in funding mode. 

“There is no way to time the market,” David explains. “Whether you [raise it] today or tomorrow, you should start building relationships now. Because market timing is always obvious in hindsight, but not obvious in foresight.”

2. Cast a wide net

We’re talking, really wide. 

“Talk to your lawyer, talk to your accountant, talk to your banker, talk to your dentist,” says David. “Convince them, pitch it to them, see if it resonates with them.”

David shares that this is a particularly effective strategy for funding small ventures.

“If you're running a $10 million, $15 million fund, any one of those people could be a great LP to invest.”

Keep in mind that fostering relationships with LPs may pay off in unexpected ways down the line. Successful LPs and fund managers often know other motivated investors, with whom they can put you in contact when it’s time to fundraise. 

3. Keep networking events small and personal

“The easiest way to get to know LPs, and have other people introduce you to LPs, is to host events: intimate dinners of six, eight, or ten people” David explains.

Inviting someone to an interesting event is a much easier ask than getting on an LP’s schedule for a 30-minute pitch. 

While David notes that larger events can be great for networking, he says that smaller-scale get-togethers allow you to build strong, warm and genuine relationships with particular LPs. 

And when David says “personal” he really means it. He has even gone so far as to host escape room events in which all the clues were based on a group of LPs’ anecdotal stories. The leg-work is worth it. “You do a lot of research,” David concedes, but ultimately “every single individual is like, oh my God, this event was designed for me.”

Nothing beats a personal touch. 

4. Open doors by asking for advice 

Another simple, low-stakes way to connect with LPs is to reach out to them for advice and get an idea of what they would do in a particular situation.

“Investors love giving advice, because it's free,” David says. “And if you come back, and tell them that their advice actually went somewhere, it's a good dopamine hit for a lot of folks.”

When querying LPs keep it casual, and go into it with an open mind. You may not actually end up following their guidance, but you’ve strengthened a connection for the future.

“It's all about investing in lines, not dots,” David says. “It's much better for you to build that relationship over time. [The LP] will see how you think over time, how you react to pitfalls, as well as your best moments.” This empowers the LP to “finally decide that they’re going to invest in your next fight.”

CAUTION: David cites this bit of wisdom from Scott Belsky’s book The Messy Middle, “if you sometimes listen to your investors’ advice, you might fail. If you always listen to your investors' advice, you're guaranteed to fail.” Don’t feel pressured to follow an LP’s advice just because they shared it; make the choice that’s right for you. 

5. Tap into your value as an educator 

David has found that LPs, especially small family offices, are somewhat unique in the world of venture capitalism, because they are often motivated by educational opportunities. 

“For the smaller LPs out there, venture capital is not an asset class but an access class,” David explains. “They're looking to learn, they're looking to find deal flow, they're possibly looking for co-investment opportunities. They're not necessarily geared towards financial return.”

So, lean into this inclination! When pitching to LPs, highlight the collaborative assets you bring to the table. How can working with you make them a better investor? 

6. Remember, repetition is your friend 

There's a well-known adage in the world of advertising that states a person needs to see an ad seven times before it actually resonates with them. David has found that the same thing is true in venture capitalism. 

Taking a nugget of wisdom from Tim Ferriss, author of The Four Hour Workweek, David stresses that connecting with LPs doesn't need to be super time-intensive and elaborate. 

“This part is extremely important,” David says. “You want to connect for even 30 seconds, 10 seconds. [Your outreach] lives rent-free in the mind of the person you want to get in front of.”

Here’s one way that David puts this principle into action: when David discusses something on Superclusters that he thinks is relevant for a particular family office or pension fund, he’ll forward a clip of the pertinent section to his contact. He links to the full podcast, in case the LP has an interest in the larger discussion, but he makes it easy for people to engage with his content even if they’re exceedingly busy. 

Not every email or call has to be an invitation or pitch. Sometimes less is more. 

7. Leverage logos…within reason

David finds that the most fundable operations at this moment in time are spinouts doing niche verticals with concentrated portfolios. 

“In this world, people like LPs are relying on pattern recognition…and the easiest patterns to recognize are brands and logos. If you are a spinout, it is much easier to tell your story, and at least to get face time with an individual.” 

If you can leverage a logo or track record, these can be powerful motivators for LPs. However, David cautions against highlighting tenuous or late-stage connections. 

At the end of the day it comes down to integrity and strength of vision. 

“If people can approach me with intellectual honesty before I even have to go through that analysis…I love that a lot more than hiding things under the hood and bundling your track record together with previous things.”