The Twenty Minute VCBeezer Clarkson: Are LPs Open for Business & Why Do LP Incentive Mechanisms Need to Change? | E1073
CHAPTERS
- 0:00 – 0:21
Cold open: Why some LPs need big-fund vehicles (and lower-risk alpha)
Beezer frames a core constraint in LP land: many allocators must deploy extremely large checks, which naturally pushes them toward certain fund sizes and structures. She also highlights a key difference in mindset—LPs are often optimizing for capital preservation and portfolio construction, not pure risk-taking.
- •Some LPs must write $100M–$150M+ checks, limiting viable fund options
- •LP objectives often emphasize capital preservation and risk control
- •Large funds can be logical vehicles when size and risk constraints dominate
- •“Alpha without risking losing it” captures the LP balancing act
- 0:21 – 0:54
Who Beezer Clarkson is: Sapphire Partners and early-stage fund investing
Harry and Beezer set context for the conversation and Beezer explains her role running Sapphire Partners, Sapphire’s LP strategy. She outlines their focus on early-stage venture fund investments across the US, Europe, and Israel.
- •Beezer leads Sapphire Partners (LP strategy at Sapphire)
- •Focus: early-stage venture funds across US, Europe, Israel
- •In-person discussion sets up a candid LP/GP dynamic conversation
- •Establishes her vantage point as a long-tenured institutional LP
- 0:54 – 2:30
The power law lesson: why “base hits” rarely create top early-stage funds
Beezer shares what she’d tell her younger self: deeply internalize the power law and what it feels like when a breakout company drives outcomes. She argues that consistent singles and doubles are rarely enough for early-stage venture outperformance without true fund-returners.
- •Power-law outcomes define early-stage venture performance
- •Early-stage funds rarely outperform without at least one fund-returning company
- •“Onesies and twosies” add value but typically don’t create 3x+ outcomes
- •Ownership and exit size math determines what must be true for returns
- 2:30 – 4:33
How LPs build portfolios: diversification, overlap, and ‘look-through’ math
Harry presses on whether LP portfolios are too diversified; Beezer responds that LP strategies vary widely. She explains how LPs think about overlap across managers and how “look-through” exposure helps them understand what portfolio outcomes must happen to matter at the LP level.
- •LPs differ significantly—no single right diversification answer
- •Some LPs minimize overlap across managers to broaden seed exposure
- •Others accept overlap to increase payoff if a theme/company hits
- •LPs perform look-through math: check size → fund exposure → company outcomes
- •Portfolio construction depends on goals, constraints, and beliefs
- 4:33 – 6:22
Consumer vs enterprise dynamics: consistency vs spikes, and how exits shape returns
Beezer describes Sapphire’s research into consumer vs enterprise venture outcomes: enterprise tends to produce more consistent exits, while consumer can produce larger spikes. They discuss how managers can still make money in volatile consumer outcomes via partial sales, timing, and distributions—when feasible.
- •Enterprise exits: more consistent; consumer exits: bigger spikes
- •Examples used to illustrate volatility and timing in public markets
- •Managers may sell partial positions in later rounds to lock in returns
- •Lockups, float size, and market conditions affect distribution strategies
- •Sapphire publishes research on consumer vs enterprise performance
- 6:22 – 10:59
Are LPs ‘closed for business’? Selectivity, pacing, and the liquidity squeeze
Beezer rejects the idea that LPs have stopped committing, but emphasizes increased selectivity and lower overall dollars versus peak years. She links slower commitments to slower company fundraising, slower GP capital calls, and LP budget and liquidity constraints—especially for endowments/foundations with mandated spending.
- •LPs are still committing, but with higher selectivity
- •Dollar volume is down from peak fundraising periods
- •Fundraising cadence (18 months vs 3 years) pulled LP budgets forward
- •Exit markets being shut impacts liquidity management across asset classes
- •Endowments/foundations face mandated outflows and liquidity rules
- 10:59 – 15:45
If liquidity stays shut: secondaries, steep discounts, and the DPI vs TVPI dilemma
The conversation turns to what happens if IPO markets remain closed longer than expected. Beezer anticipates more secondary sales and tougher portfolio choices, while noting the price discovery gap between buyers and sellers. They debate whether emerging managers should sell winners for DPI to raise the next fund, and how LP expectations on “hold your winners” are changing with context.
- •Longer liquidity drought implies belt-tightening and industry winnowing
- •Secondary sales/strip sales are increasing but pricing expectations differ
- •Managers face trade-offs: sell partial stakes for DPI vs hold for TVPI upside
- •LP attitudes toward partial liquidity have become more pragmatic
- •Fundraising pressures can drive behavior that looks like misalignment
- 15:45 – 18:41
What LPs want now: fund-two behavior, fund size reductions, and stricter underwriting
Beezer argues LPs still want the same fundamentals—access to great companies, strong fiduciary behavior, and stable teams—but the post-bull-market reset has reduced tolerance for momentum investing. They discuss how institutional LPs often support fund twos (especially for spinouts), and why fund sizes are already coming down in some segments.
- •Core LP criteria unchanged; scrutiny and selectivity have increased
- •Bull-market FOMO created ‘momentum’ bets now being reassessed
- •Institutional LPs often re-up through fund two due to limited early data
- •Smaller/newer funds face more volatility in re-up decisions
- •Fund sizes are already being reduced (e.g., 250 → 150)
- 18:41 – 24:57
The fund-size landscape: Goldilocks funds, why big funds still exist, and micro-fund realities
Harry describes capital concentrating in a “middle zone” where LPs can write meaningful checks without extreme uncertainty. Beezer agrees—LPs want managers big enough to be credible but not so large that strategy diffuses. She also explains why large multi-billion vehicles still serve certain LP needs, and why micro-funds may persist via platforms and individual LP bases.
- •LP preference for ‘Goldilocks’ funds that support $20–$25M checks
- •Hard to access mid-sized winners if you weren’t in early (capacity constraints)
- •Large funds persist because some LPs must deploy huge checks safely
- •Micro-funds may survive through platforms/individual LP bases
- •VC-backed LP programs can help stand up smaller managers (with mixed motives)
- 24:57 – 27:22
Signal and selection: what an LP commitment really indicates (and when it misleads)
Beezer challenges simplistic “brand-name LP = great fund” thinking, arguing you must understand why a fund fits that allocator’s portfolio. She explains how different LP motivations (returns vs strategic direct investing access) can distort the informational value of “who’s in the fund.”
- •Brand-name LP participation can be an imperfect signal without context
- •LP motivations vary: pure returns vs access to direct deal capacity
- •Knowing how a specific allocator underwrites can improve signal quality
- •Small LP teams often use heuristics due to bandwidth constraints
- •Understanding ‘why they invested’ matters as much as ‘who invested’
- 27:22 – 31:54
From fund one to institutional blue-chip: the access flywheel and persistency debate
Beezer describes how early wins can create a flywheel: strong companies attract better founders, which improves access and reinforces performance narratives that bring in LP capital. They touch on persistency debates and the reality that it’s hard to prove capability in a single fund cycle due to time horizons.
- •Early breakout wins can compound into stronger founder access and deal flow
- •LPs often underwrite ‘proprietary access’ even if deal flow isn’t exclusive
- •Persistency in venture returns is debated but widely believed in practice
- •Time is a constraint: fund one rarely provides enough proof quickly
- •Risk appetite changes after success—less fear of downside, more focus on uncapped upside
- 31:54 – 43:02
Fund mechanics and misalignment: valuation opacity, TVPI incentives, fees, and GP commit
They dig into how hard it is to value venture books in a down market, why marks differ across managers, and how auditors and stale pricing complicate fair valuation. Beezer highlights a major incentive issue: some professionals are compensated or judged on TVPI, not DPI, which can skew behavior. The discussion expands to fees, stacked fee bases, “3 and 30,” and why GP commit and management fee norms can create barriers or misalignment—especially for emerging managers.
- •LPs may haircut reported NAV/marks (e.g., 20–25%) due to uncertainty
- •Managers can hold the same asset at materially different values across books
- •Auditor guidance and ‘last round’ marking can be problematic after 2021 pricing
- •Compensation/measurement tied to TVPI vs DPI can distort incentives
- •Fees and fund stacking can create misalignment when fees are lucrative without performance
- •Emerging managers may need higher fees to run a viable business; GP commit can be an unfair barrier
- 43:02 – 1:00:34
Manager–LP relationship dynamics: pacing feedback, tough conversations, opportunity funds, and the ‘new normal’ + CalSTRS
The final stretch covers how LPs respond to fast deployment and accelerated fundraising cycles, and why many avoid tough conversations due to FOMO and perceived power dynamics. Beezer discusses opportunity funds and “unstapling” (decoupling vehicles) as LP alignment increases in a tougher market. The episode closes with quick-fire reflections and Beezer explaining Sapphire’s new CalSTRS mandate to run its early-stage venture fund program.
- •LPs are encouraging some GPs to slow deployment and fundraising cadence
- •Fear of losing access and FOMO can prevent LPs from pushing back
- •Breaking commitments is delicate; LPs use productivity/TVPI comparisons to justify decisions
- •Opportunity funds: mixed LP views; some use as a path into core funds
- •Unstapling is rising as managers try to be more LP-aligned in fundraising
- •Beezer sees the environment as a return to more traditional venture norms
- •CalSTRS: Sapphire takes over early-stage venture fund mandate (funds 1–3), increasing deployment capacity
