On the Bleeding Edge: LP disclosure concerns take root

I want to know who your LPs are. Yeah, I know that’s a pipedream, but it’s interesting to hear more scuttlebutt over LP disclosure for various reasons.

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My colleague Chris Witkowsky at Buyouts opined on this topic in Friday’s PE Hub Wire newsletter in regards to confidentiality agreements and GPs preventing LPs from talking with one another. There’s a competitive issue at stake, too: I recently heard from an LP-relations person at a venture firm who told me how the firm tried to secure a new family office LP for its most recent fund, but the timing didn’t work out since it was so near its final close. The LP invested in another venture firm and now the first firm has to wait until its next fund and hope the family office is still interested.

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But the issue of LP disclosure is also coming up in regards to Russia and its supposed interference with U.S. politics. It was revealed recently that Yuri Milner’s firm, DST Global, acquired a stake in Facebook and Twitter with funding from Kremlin-owned firms VTB Bank and Gazprom. But as VCJ‘s Kaitlyn Bartley reported, Milner said that any indication that DST Global was working on behalf of the Russian government to gain influence over social media is false. Still, the issue here is that we should know where VC money is coming from.

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We noticed a Twitter thread this week on which several VCs, including Hunter Walk and Roy Bahat, chimed in, about whether VCs should disclose their LPs.

 

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Some of the comments were in jest because it’s a Twitter conversation, after all. But it’s interesting to hear VCs discuss the issue, albeit on a social-media platform.

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We have another reason to want to know who your LPs are. So many VCs and startup entrepreneurs have behaved badly lately, whether it’s CEOs fostering an office culture that’s unpleasant for women or venture capitalists accused of sexual misconduct or harassment. There’s no shortage of stories involving bad behavior. The VCJ staff has reached out to a few LPs to discuss their reactions and what will become of the venture firms that are under duress and in which they have invested so much money. The problem is: We don’t know which LPs are in each venture fund.

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A male VC recently spoke to me about how the venture community is dealing with recurrent incidences of his male peers being accused of behaving inappropriately toward female co-workers and entrepreneurs. He said he was disgusted by the alleged behavior, but he also said the LPs were partly to blame. His point being that they are tasked with conducting due diligence on firms when they invest, and some of them knew of past indiscretions of certain partners but still chose to invest. It’s time, he said, to hold LPs more accountable for the actions of their GPs.

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Come back to me with your thoughts on both LP disclosure and LP responsibility for the harassment scandal. I can be reached at agoldfisher@buyoutsinsider.com.

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Lastly, I wanna give my deep appreciation on this Veterans Day to military personnel everywhere, including many from my extended family who served in various branches of our U.S. military. I may not always agree with them, but I honor and remember those who served. On a related note, we noticed a fund filing this week regarding an interesting firm, LunaCap Ventures of New York, that provides venture debt funding to early-stage companies founded by military vets. It’s worth checking out what our reporter Iris Dorbian posted this week and how it’s seeking to raise $30 million.