The Benefits of Becoming an LP to a VC Fund During a Downturn and Why Everyone Should Consider It
First, let’s talk about what a limited partner (LP) is and what they do in venture capital (VC). A LP is someone who invests money into a VC fund. VC funds are investment vehicles that invest the money from their LPs in early-stage companies with a lot of growth potential. LPs usually have a passive role in the fund and do not participate in the day-to-day decision making or management of the fund or in the companies in which the fund invests. Instead, the VC fund managers make all investment decisions and manage the portfolio of companies on behalf of the LPs. So, in exchange for providing capital, LPs receive a share of the profits generated by the VC fund’s investments. This can be a high-risk investment because many early-stage companies may fail, but the potential returns can be huge if the fund’s investments are successful.
Now that we’re all on the same page, let’s talk about the benefits of becoming a LP in a VC fund and why everyone should consider it — even in a market downturn.
Why should everyone consider becoming an LP in VC funds in a downturn?
There are several reasons why everyone should consider becoming an LP during a downturn:
- Potential for financial gains: The main reason to become a LP during a downturn is the chance of making a lot of money. During a downturn, company valuations tend to come down, layoffs at large companies flood the market with great talent, and startups put a greater emphasis on business fundamentals in order to survive. All of these combine and historical data point to it being a great time to invest in early-stage startups and venture capital funds.
Have you seen this graph? Equiam analyzed 42 years of venture capital fund vintage performance and concluded that when the economy is uncertain, venture capital funds generally do better than other types of investments. They also pointed out that the current market is a great “launch point” for exceptional venture capital vintages.
- Opportunity to support and contribute to the growth of innovative companies: During a downturn, many companies may struggle to raise capital, and becoming an LP can help these funds and companies to continue to innovate and grow.
Did you know that these 9 successful companies came out of downturns? Microsoft (1975), Netflix (1997), Airbnb (2008), Slack (2009), WhatsApp (2009), Square (2009), Uber (2009), Instagram (2010), and Pinterest (2010).
- Access to unique networking and learning opportunities: As an LP, an investor can get access to unique chances to network and learn. By joining a venture capital fund as an LP, investors can meet other successful investors and learn from their experiences and ideas. This can be a good way to learn about the market and helps investors understand it better so they can make better investment decisions.
- Access to high-quality deals: VC funds can give you the chance to invest in high-potential startups that may not be available to individual investors. They can also give you the chance to invest in high-quality startups at a lower valuation than at the market’s peak. This could lead to higher returns on investments when the market recovers.
Overall, becoming a LP in a venture capital fund during a recession can be a smart move for accredited investors who want to maximize their returns and get access to a wide range of startups. Being an LP can also be a rewarding and beneficial experience for investors because of the new relationships built and knowledge gained.
If you want to take advantage of the strategic move to invest during a downturn in order to maximize your returns and gain access to a diverse portfolio of startups, take a look at Ganas Ventures! Ganas Ventures is a venture capital fund that invests in pre-seed and seed community-driven startups in the US and Latin America. We offer support and investment to founders with a big vision and a passion for addressing big problems in growing markets. We provide expertise, tools, and access to our community of over 77K members to help our portfolio companies succeed. Our fund is led by solo-Latina-GP Lolita Taub (me!) and is focused on producing outsized returns and changing the narrative of who VCs invest in and how companies become unicorns.
If you’re interested in learning more about Ganas Ventures and are considering investing in our fund, let us know here.
About Ganas Ventures: Ganas Ventures invests in pre-seed and seed community-driven startups in the US and Latin America. To learn more visit us at ganas.vc.
Disclaimer: The views above should not be taken as financial or legal advice. Please do your own research before making any financial and legal decisions.
- The Benefits of Investing as an LP in VC Funds Compared to Angel Investing in Startups
- How to become an LP in a VC fund
- Early-stage micro-fund VC 101: What Investors, Founders, and Scouts Should Know
- Welcome to Ganas Ventures!
- Community-Driven Companies: What They Are and Why We’re Investing in Them
- Ganas Ventures: How We Source, Select, and Support Startups
- Ganas Ventures Resources
- Ganas FAQ
About Lolita Taub: As a Latina emerging manager and general partner at Ganas Ventures, I always want to work with or invest in community-driven founders, funders, and friends. I have a strong track record with 15 years of experience in the Silicon Valley ecosystem. I have sold over $70 million in tech products and services, made over 90 investments as an angel investor and venture capitalist with Backstage Capital, Lightspeed, and The Community Fund, and had 3 successful exits from my portfolio.
Forbes, Inc Magazine, Nasdaq, and others acknowledge my efforts in advocating investment in underestimated and undervalued founders. I completed my undergraduate studies at the University of Southern California and earned my MBA from the IE Business School.
In addition to my professional accomplishments, I am a dedicated community builder with more than 78,000 founders, funders, and ecosystem friends. And I want to back founders who care about the community, invite LPs into the Ganas Ventures family, and build wealth in the community that will last for generations.