Why smart LPs are strategic about venture investing and choose to work with emerging managers even in uncertain markets

Is now the right time to allocate to venture capital? This question remains prominent in LP-GP discussions and was central to mine during the Altari Ventures Fund I fundraising process. Such discussion was unsurprising, as my raise coincided with the public market downturn and the start of the rising rate cycle. These factors left active venture LPs overexposed via the denominator effect and created uncertain sentiment towards putting capital into a high-growth but illiquid asset among those just ramping up their venture capital allocation.

While understandable in some ways, I found that the decision-making framework many newer investors used was quite tactical, as if venture is easy to access when one decides it is the right moment to get in. It is a well-known fact that market timing doesn't generally work in the public markets where participation is open to everyone, instantly. The private market has an added layer of challenge: you can’t just click a button to establish a diversified VC position. You need to find reliable investment access and build the allocation over a long-term horizon. And it is very likely that if you wait for the perceived relative value between asset classes to shift before you commit, the best entry points into venture will be in the rear view mirror. This is one of the key reasons why the framework for successful investing in venture capital can only be strategic.

It is hard to stay the course when the world feels unsettled, and parting with capital is uncomfortable. But in the history of the capital markets, those are typically the best times to capture outsized return. Top institutional LPs and sophisticated family offices know this and maintain a steady allocation throughout market environments.?

“You cannot avoid bad cycles, but by being consistent in your commitments, you will not miss the great cycles,” 高盛 wrote in their 2023 Family Office Investment Insight Report, also observing that family offices invest in the private markets primarily via managers rather than directly. Going through a manager is an important call-out, as there is confusion among some market participants that data access equals deal access. Not the case. You can have the best analytics and know all the trends, but that by no means guarantees access to the right GPs, deals and entrepreneurs. Access and trust are closely linked, and they take time to build.?

It is also worth noting that smaller, emerging funds thrive on genuine relationships, go the extra mile for their LPs and often offer greater LP-GP incentive alignment. Benedikt Langer , founder of The Associates Network and family office consultant, makes some great points in this post regarding why family offices write checks to emerging GPs, rightly noting the importance of relationships and trust. James Heath , a multi-family office VC allocator, echoes them in a recent post regarding fund size: “Smaller funds can deliver the results you need.”

If I had one piece of advice to give LPs building a venture capital allocation, it’s this: be strategic and consistent through market environments, not tactical. And the best way to make the right strategic bets over the long term is to access quality dealflow via trusted relationships. As many family offices already know, working with a smaller or emerging manager that is already networked in your area of investment interest is an ideal place to start. ?

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