Quality limited partners will respect your boundaries on what you don’t share prior to their commitment to enter full due diligence on your fund.
Recently, in a first meeting with an institutional LP, I was asked “How are you exactly allocating the fund’s carry amongst the team?” I responded, “We would be happy to share important details on this and many other items when you have decided that our fund is a fit and you have entered into full due diligence.”
A slightly less direct response that I’ve used in previous instances was, “I don’t recall exactly. I will get back to you on this.” Then, in my follow-up email, I provided the first response.
I know what you are thinking: what if they need to know this to move forward and I really want this LP in my fund? Won’t this be viewed as evasive, hiding something, or just piss them off by not answering? If I knew the answer, why wouldn’t I just tell them?
You might be thinking: With a “prospective LP meets fund manager” scenario, the LP has all of the power. In such a case, isn’t the customer/buyer, always right? Well, if you feel that the LP has much more power in the relationship, then you’re going in with the wrong mindset. You’re offering a compelling product that may be immensely valuable to the LP (hopefully, you’ve done your homework ahead of time to confirm this.) Remember that you, the fund manager, also have power. (This is a longer discussion to be addressed in a future article.)
Then why is the LP asking me this question? Often it is because they are a relatively junior representative of the institution and they are just curious (they don’t get paid carry). More experienced LP representatives will be focusing on more important information in gathering information for their screening process. I’ve not yet experienced a LP who has been offended by my polite and reasonable boundary on a topic I’m not yet ready to get into.
As a LP shows more commitment to you by committing more resources to evaluate your fund, then it is appropriate to share more “internal details” with the LP.