Ep 049 - Nate Leung, Partner at Sapphire Partners

Where do VCs get money from?

Welcome to LP land. The mysterious world where people who fund VCs live.

Nate Leung, Partner at Sapphire Partners and Co-Founder of OpenLP, gives us a peek into the backbone of the venture ecosystem, and it’s wilder than you think…

Episode 049 is live.

Here’s what I learned:

1️⃣ Great investors ≠ Great fund managers. You can pick winners all day. But if you can’t deliver trust, consistency, and a narrative LPs can sell internally, you won’t survive as a fund manager.

2️⃣ GP-LP fit matters. LPs represent causes, initiatives, and interests. These relationships last decades. Partner with the organizations you’re aligned with.

3️⃣ Every LP has different incentives. Some allocators want access to innovation. Some want brand and prestige. Some would rather be safely wrong than boldly right. Work with people who are structurally incentivized to want your success. Ask yourself, how are folks on the LP side compensated?

4️⃣ Investment decisions are often team sports. You may write the best memo in the world, but without trust and credibility, you won’t get far. Circulate opportunities and gauge appetite before decision time.

Timestamps:

(00:00) - Introductions

(01:30) - Sci-fi novels + being a parent + time travel

(07:08) - Origin stories

(09:18) - Great investors vs. great fund managers

(12:03) - GP-LP fit

(16:03) - LP incentive structures + signaling

(18:41) - Liquidity and secondaries

(21:21) - Why is LP land so mysterious?

(22:53) - CalSTRS + conflict of interest

(28:02) - Portfolio construction

(29:43) - GPs switching strategies

(31:08) - Are platform teams actually valuable?

(33:30) - Raising Fund I from track record and references

(34:00) - Pools of capital still investing in <$50M funds

(35:20) - Who/what decides fund size?

(38:05) - “Value-add” LPs

(39:26) - What is the biggest compliment an LP can receive?

(41:02) - What’s something you learned the hard way?

(44:04) - Ceremonial Final Qs