Capital Club Part 3: Questions that LPs Don't Ask but Should
Wrapping up the 3-part series of Questions That Investors Don't Ask But Should, Brian Adams discusses why investor references and referrals are critical. He shares their Frequently Asked Questions video with prospective investors and presents examples of people who offered to act as references for them. This episode highlights the importance of getting insight from investors on deals that have not gone well. It emphasizes the value of asking sponsors and managers about their track record of handling difficult situations, as this will give you a better sense of their investor relations, reporting, communication, and transparency.
Ultimately, being aware of the risk involved in investing is vital. Still, the reward can come with understanding a group's behavior and learning from any mistakes made along the way. Tune in now for an insightful discussion about investor references and referrals!
[00:01 - 05:27] Asking the Questions Investors Don't Ask
- Include a frequently asked questions video segment when sending out a new investment opportunity
- Ask for references to investors in deals that didn't go well
- Get a different perspective from a happy investor
- Track record is how we react and respond to deals that don't go well
- Hard questions and difficult conversations reveal transparency, communication, and infrastructure
- Get a sense of how the firm operates in challenging situations
[05:28 - 10:34] Learning from Mistakes and Evaluating GP Sponsors Through Third-Party Vendors
- The character and value system of a group can be judged by how they navigate adversity
- Third-party vendors/service providers can give an industry perspective on the group
- How people treat others is a proxy for how they operate outside of communication
- Employer-employee mentality often influences collaboration and partnership
- Take note of the response from the GP and sponsor when asking for referrals
Quotes:
"The secret sauce is in asking the kind of questions that people don't typically ask, and you'll get some interesting responses." - Brian Adams
"Asking to speak to a former employee can be very powerful when you're doing due diligence on a manager. They can give you a really good perspective on company culture, capabilities, and organizational depth." - Brian Adams
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