A unique experience of being a General Partner (GP) in a venture fund is being both on the raising and investing sides of the table. On any given day, I’m evaluating investments and founders, while I, too, am being evaluated. 

This has me thinking about the characteristics that LPs - limited partners, or fund investors - look for in GPs, and whether and where that differs from what we look for in startup founders. 

But that’s just one of the many questions I’ve been wanting to ask LPs. I’ve also been wondering:

Do LPs care if GPs are good at fundraising? 

How do LPs think agtech differs from other venture sectors? 

Do impact-first and financial-first investors want to co-invest?

How do LPs think about where returns will come from in agtech?

So in another excuse to learn (and fundraise) out loud, and in an attempt to continue to open the black box that is investing, I jumped on the opportunity to catch up with Eliza Jackson (Macdoch Ventures) and Sara Balawajder (Builders Initiative)  - two investors who’ve scanned, scouted, and deployed globally into agtech funds and direct investments. 

We cover a ton, and you can catch up on the full chat on our podcast here, or check out some highlights below. 

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SVN: Who are you and how'd you end up in venture? 

Eliza: I work at Macdoch Ventures, we're a single family office based across Sydney and London. I had a pretty classic path into venture as an asset class, but probably a less classic path into being a limited partner in funds. I went from banking, where I was covering a whole bunch of industries, but really liked the parts of my day where I got to talk about small niche tech companies that nobody had heard of, and traditional companies that had innovative business models. I wanted to learn more about those companies, and so I pulled that thread, and ended up full time in venture. Luckily, it was a pretty small-ish industry in Australia when I joined, starting in a classic analyst role investing in founders, and then I eventually found my way to also investing in funds.

SVN: Why agtech? 

Eliza: In terms of agtech, it's a vertical of interest for us. We're a generalist fund and we invest across industries, primarily in B2B SaaS. I think there's a whole lot of scope for food and ag to improve as a system, and there's a whole lot of scope for both software and hardware. Personally I'm really excited about the role of software in our food systems and making our food systems more sustainable. There's so many problems you can pick apart there and I think that's really exciting.

As a family office, we also have farming properties where sustainable ag is a real tenant of what we do there. And so we've started investing in agtech and foodtech funds around the world to bolster our knowledge, and have a global team of experts in agri food that we can lean on. 

SVN: Sara, how about you?

Sara: I work for Builders Vision, which is Lucas Walton's impact platform. Builders is really focused on allocating capital to climate solutions, specifically in sustainable food and ag, renewable energy, and oceans. I run our Impact First food and ag portfolio, which is really focused on facilitating the adoption of technology to help promote better sustainability practices, and we see ag technology as hugely important in terms of tools that reduce the system frictions and drive adoption.

Kind of opposite to Eliza, I actually came into the space on the LP side- I've always worked with family offices, allocating to funds. Then at Builders, my role has evolved over time -I still do a lot of fund investments, but now also do a fair amount of direct investments in this food & ag portfolio.

SVN: You both do direct (startup) and indirect (fund) investing. How do you think about the difference, and why invest in funds?

Sara: For our impact first food and ag portfolio, we are very intentional about how we think about allocating to funds versus directs- we really focus on a system friction approach.

If we're investing directly into a portfolio company, either with an equity check or a debt facility, there has to be a clear, compelling rationale of how they are alleviating a system friction. Where there is a more generalist approach, we lean into our fund managers to provide that expertise. And so for us, it's really trying to get nuanced on what we’re trying to achieve in the marketplace that will help move the needle in the transition to sustainable practices on farm.

SVN: What’s an example of that kind of system friction? 

Sara: Yeah, so we have mapped out, thematically, what the system frictions are that we're trying to address. One that we spent a lot of time in this year is access to operating capital for farmers looking to transition their land. And in that theme, we really leaned into fund managers to lead that charge, whether it was through equity or debt financing, or agtech in general.

Tenacious Ventures is a fund we recently backed, which we're excited about. And then we also directly backed a company called Quick Organics, which is trying to digitize the organic certification process today in the U.S. That process is completely analog, and we see that as a barrier to entry for farmers looking to transition their practices.

SVN: Eliza, how about you? Why direct vs. indirect?

Eliza: For us, an indirect portfolio gives us diversification, or a number of investments, so we get exposure to what's happening in the asset class more broadly, and across geographies. We start to understand what are the trends in food and ag, rather than just what we’re seeing locally in Australia. Most of our agri food portfolio is funds, at least at this point.

It's a relatively new endeavor for us over the last 12 to 18 months, and so we also think about getting expertise around the table as we come up the curve here. It's great for us to be able to call on specific managers, for example across regenerative foods or tech for farmers. I think having those people to call on and bounce ideas off is really helpful for us as well.So it's somewhat about bolstering our team, because we're only a team of two. Over the time we’re partnering with these funds, though, we will also co-invest and go direct.

It's a confidence building thing. This is a new sector for us, and we acknowledge there's a lot to learn. And whenever that's the case, we think partnering with fund managers can be a better way to get deeper, faster, rather than sitting behind and spinning your wheels, getting stuck on desk research.

SVN: How do you think about the different characteristics you look for in GPs versus founders?

Eliza: The main difference is probably that with a founder, we want them to shoot the lights out with almost everything, and so the risk tolerance is super high. The kind of outcomes that we're underwriting are larger, hence we're looking for that kind of personality type. With a fund manager, I want to see deliberate risk taking, and underwriting of an asset with an understanding of what the exit pathways look like, which is quite specific in ag.

Sara: I also think there are a lot of similarities in how you approach the underwriting process. I think for funds and for early stage founders, it's understanding product market fit. What are they investing in, either from a fund perspective, or what are they creating for a company, and is there a product market fit for it? Do they have the right team to execute on the strategy? The right networks? And then is there that chemistry amongst the team and that trusting relationship? 

And so it's interesting, I think there are a lot of similarities, and that was surprising to me as I transitioned more into direct investing from the fund space. It's really team evaluation. And skills. Do we fundamentally believe and have trust that both the entrepreneur and fund manager can execute on what they're telling us their goals are?

SVN: That’s super interesting. Our experience is that some investors, but not all, ask us things like ‘how did you and Matthew meet’ and ‘have you gotten in a fight’ or ‘what are your values’. Things that we think are so critical. There's a pretty high correlation between people who spend time with us on that versus people who are like, ‘give me the financial statements of the companies from the last two quarters.’

Eliza: I think we probably pushed you on this too, Sarah, because every fund we invest in, we try to understand, ‘what's the five, ten year view? What do you want to build here?’ Every great founder that we back, I think has a vision that kind of grows over time with success. They feel more confident to tackle a bigger problem and a bigger problem. The problem never gets smaller. It always gets bigger. And I think it's the same for fund managers: if you've had success in your region, are you going to go broader? Are you going to go bigger? Or is your ambition to stay the same? And that's fine too. But for us, it's important to understand that.

We often get feedback that no one asks that question. And I think that's because we're a GP before an LP, and that's why we ask the question. 

Sara: It's a very long term relationship. At minimum, it's 10 years. And like, do you really like each other? Do you want to be in business together for that long? It's something that we have to get comfortable with.

SVN: Sara, you’ve said you’re “impact-first” and Eliza you’ve said you’re “returns-first”. How do you think about those objectives in agri-food? Is there tension between them? 

Eliza: We're really thinking about it from a portfolio construction lens. We're trying to get a number of different exposures that we wouldn't be able to do ourselves. And so to some extent, it's less about sustainability for us. And that might be an unpopular answer, but it's actually about trying to understand what's going to drive us forward, and what forward looks like. 

Impact is part of it, but it's probably a nuanced view, and it's returns first. We think this is a really important part of the society we live in-  acknowledging and tapping into the big pools of capital and pools of value by finding better ways of doing things that we're not currently doing now. We want to use financial incentives to change behavior. What's most powerful is where you can encourage people to change their behavior based on something that's going to generate them a greater bottom line or increased profitability.

Sara: As impact-first investors, we need to fundamentally see that there’s a sustainability & impact alignment with our vision of systems change. But then in order to move forward with the investment, we have to fundamentally believe that there is room for scale and that there is a strong case for financial return. And so it's not that we're making concessionary investments. There are times that we do, but not in agtech or venture investing. 

For us, it’s about understanding the potential for scale and where catalytic capital can come in and either be an anchor investor in a fund or an early check in a pre-seed company. That unlocking piece of it is what we think a lot about because ultimately we're trying to influence a shift in the market, and to have systems change, you have to have institutional investors who are willing to come to the table later. 

When we're evaluating venture funds, we also think a lot about the appropriate sources of capital, for some of these hardtech investments. Do we believe that there's going to be venture-like returns at the end of the day?

And so understanding portfolio construction is really important, acknowledging that there's going to be some winners and there's going to be some losers. But how is the fund manager thinking about the companies that they're investing in? How are they tackling key sustainability issues, and then how do you build the portfolio around it to drive ultimately financial returns?

SVN: Beyond impact and returns, in whichever order, what else is in the top five that you look for? And is there anything that maybe GPs don't think makes the list, but that often does?

Eliza: For us, ‘right to win’ is something we do spend time on. It’s an increasingly busy market from a capital perspective, and so are there historical examples, or if we project out into the future, what's your right to win. Being specific can be enough, like being the regenerative agriculture fund can be sufficient to give you a right to win. But if we work through three to five years, what does that look like rather than just looking at a static point in time.

And then again, for us, the whole point of this is having extensions of our team globally who are great at what they do. So we need a willingness to engage. It's not crazy- some funds we have monthly catch ups with, but most we do quarterly.

That does require some effort from our managers to engage with us, but hopefully that becomes a more fruitful relationship for both sides over time. 

Asking GPs how they perceive their LPs is something I really dig on in the due diligence process that I don't actually think GPs expect.

‘What does a great LP relationship look like?’ is a question I ask all of our GPs, and most of them are like, ‘huh, you're the first person to ask me that’. I'm like, how is this possible? How do people not care about this? I think everybody cares. We just skirt around the issue. 

Sara: On the financial side, we spend a lot of time thinking about portfolio construction. Understanding how they win opportunities, do they lead rounds, valuations, and discipline. We need to get really comfortable on those dynamics, particularly with venture portfolios.

And then similarly to Eliza, your willingness to engage with us is really important because in this portfolio we are trying to get market observations to help feed our future investments. So we see this really as a true partnership. We really try to understand, are you willing to have quarterly calls with us? Can I pick up the phone and call you or send you deal flow, and vice versa?

Also on the engagement piece, because we're so focused on impact, that's a really important part of our evaluation process. We're lifting up the hood on the operations of the firm, really understanding a lot of their ESG policies. We don’t expect our partners to be perfect or have everything buttoned up, but they do need to be willing to engage with us on what they have, what our expectations are, and how we would like to see them evolve as a firm. And how we can contribute to that learning process. 

And then I think reporting is always important because we want to know how the portfolio is performing.

SVN: Speaking of performance, how do you think about exits in agtech? 

Eliza: This is maybe something we spend at least an hour, maybe more, in due diligence with every GP that we've backed. We've been grilling them on what exactly are the exit pathways for your companies. Exactly who are they? Do you have relationships with them? Who in your team has relationships with them? How do you manage that? Like, do you want them to invest? Because some of these strategics are also investing. 

Because to start with, exit pathways look very different in agri food. Perhaps they haven't seemed to in the boom cycle we’ve just been in, where it would have looked like indoor farming and all of the alternative meats would have had the same profile as software, but I think that's proving not to be true. And so for us, it's really understanding what are the likely exit pathways and who are the managers that will be more likely to generate those.

I think there are some parallels with private equity and agri food, actually. These are more likely to be M&A outcomes and they're more likely to be from food conglomerates. And so in that case, how do you play nice with them? It's very strategic. They often want to invest early. Do you let that happen? How do you keep them close to the company, but not so close they can do it themselves? 

The main thing is that the exit pathways don't look the same. And so if you as a GP can't acknowledge that with me, and you're going to tell me it's a NASDAQ IPO for all of your companies, it's probably not a fit. It's just not what we believe will be the case. We don't have enough evidence to support that argument. And so for us, it's looking for people who are really close with the potential acquirers.

I think probably also the time horizon is not going to be the same, but this is kind of a TBC. A lot of our managers are first, second, third time funds, and so we haven't seen very many exits.

Sara: I agree that strategic M&A is going to be the most likely outcome here. I think our biggest question is also the time horizon.

Inherently this is a risk averse, long sales cycle industry. So that timing is going to be one of the greatest challenges. I'll add, if a fund manager is still telling me they're going to SPAC companies, it's an automatic no for us. Like, big red flag. We haven't seen a lot of successful exits today, or we have seen IPOs that have done not so great after the lock up period, and so I'm very skeptical of the IPO markets for this industry.

One of the key differences for agri-food tech versus some of the hard tech, deep tech stuff is the capital intensity of it. I think thankfully agri-food tech seems to be less capital intensive than the deep tech venture space. I think there are some big question marks there on how they're gonna be able to capitalize those businesses longer term.

In the US, there's federal support coming out of the IRA, but I think it's still a big question mark. And so I think the capital intensity and even the scientific risk is greater than in agri-food tech, although agri-food tech, you have to wait multiple growing seasons to prove the thesis, and so it's just like a different risk profile.

SVN: I appreciate that you guys are owning, and want GPs to own, the exit strategy path and how M&A is going to play a big role. One of the questions that can lead to is in terms of portfolio construction: is the power law going to apply?

Eliza: It's a really good question. The power law one is probably the hardest question to answer. I think we don't have enough inputs. This is, as I said, a relatively new kind of segment of venture. And so for us, it's more about acknowledging the unknowns. 

I'd rather a GP have an in depth conversation with me where I walk away and go, yeah, that was really thoughtful. Or we don't know that piece of the puzzle yet. That’s way better than a GP brushing the question under the rug and saying ‘of course this is a traditional venture asset class and we'll have the same structured portfolio.’ Like, if you work through the assumptions that if most M&A outcomes are going to be 1 to 300 mil, then what does the portfolio look like at scale?

Then, depending on the stage that you invest, the downside risk probably looks a little different as well. Like, you maybe don't have 15 zeros because these companies have strategic value for somebody. 

And so again, for me, it comes back to like, when you underwrite it, do you know at that time who the possible acquirers and strategic investors might be, and how do you engage with that on an ongoing basis.

Sara: I agree, it's making sure that your GPs have realistic expectations and are going in with eyes wide open rather than completely optimistic.

And it's really getting comfortable with their networks and making sure that they're connected to the right folks to help facilitate those conversations from the very beginning. 

And yes, having strategics involved from the beginning is a very fine line to walk, but it's really important to ultimately successful outcomes as well.

SVN: It’s our number one joke in fundraising that we will earn our name as being tenacious, because it’s really challenging to create scarcity on the GP side. Is there anything that works for you guys to create urgency or get you to move faster, prioritize more, help more?

Sara: Because we also have an emerging manager program and really want to be catalytic with this portfolio, for us it’s about having that honest conversation of how our check can help that manager achieve something, or be catalytic to bring in other investors. This helps us prioritize the fund in our pipeline because at the end of the day, we're also a very lean team. So we're often triaging and trying to constantly reshift priorities depending on timing needs.

And not being honest, or like pushing weird deadlines, doesn't help the case. It builds distrust- I’m asking myself ‘what else are you telling me that might not be true?’

Eliza: Yea, for us, it's honesty. Like, if we're getting the first close, tell me why it matters if I'm part of this first close, because if you don't tell me why it matters, you're just not going to rise in my priority list. It's really just a relationship driven thing, which is again, much harder than a founder who can say, ‘I've got a term sheet, move now or you're going to be left behind.’

Some funds try to use close dates. But I don't love it when people say, ‘oh, it's a one-and-done close’ because often it's not. We back solve this stuff with reference calls and it just doesn't work well.

So for me, honestly is really just the only tool you have. We're very comfortable supporting emerging managers. We understand the problems of getting to first close. We know roughly where you want to sit at first close as a percentage of total. These are things that we know, and we're happy to talk through with our managers, but not many people do that.

I think you don't want to show weakness to LPs, or at least that's the perception. But ultimately it's a partnership and we should be trying to help each other.

Sara: Because we are really supportive of emerging managers, a tactic that doesn't really work for us is offering fee reductions.

It kind of argues against ourselves, but we really want to see our emerging managers set up for success. And so while we appreciate the generous offer, we want to make sure that Managers are properly incentivized, and are able to survive off management fees. And so for us, neither management fee reductions nor even a GP stake are really attractive. 

SVN: For founders, like it or hate it, we believe they have to be good at fundraising because if they are not good at fundraising, then they don't give themselves the opportunity to continue to build. Do you think that fund managers need to be good at raising?

Sara: I do think it's important that GPs are good at fundraising, but I think first time funds or second time funds are really, really hard. And we acknowledge that that is a dynamic. So as long as we see the GPs pounding the pavement, doing everything they can to fundraise, we're happy to step in and be catalytic once we’ve gained conviction and committed to the funds. We try to be good partners.

There have been instances where we've seen GPS where it's clear that they're actively not good at fundraising, and that has come out through the diligence process, and we've put pencils down because of that observation.

Eliza: So I have a portfolio of like generalist seed stage managers in the US, and I've seen some terrible fundraisers who have lasted a very long time based on performance. So I think it's important to make the point that fundraising does not equal making good investments. 

For a founder, the argument, to me, is much stronger. If you can fundraise well, you can tell your story well, you can hire well. Yes, a hundred percent you need to be good at it.

If I'm being a little bit controversial, I'm not sure you need to be great at it from a fund manager perspective. Though, I have put pens down with somebody who's terrible at fundraising, who just wouldn't answer a single one of my questions. We spent a 45 minute intro call with him, and when I asked a question, he said that's a bad question and answered a question that he wanted to ask. This is terrible. It's a game of relationships. And if I can't engage with you for 45 minutes without pulling my hair out, then you're not just a bad fundraiser, we're not a fit for you.

So I can think of some VC funds that are excellent at fundraising, but whose returns are subpar. And then the opposite can also be true. And I don't think either one necessarily guarantees success. That somewhat gives me an existential crisis about venture capital, but that's probably a topic for a whole other conversation.

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Huge thanks to Sara and Eliza for their support and insights. You can catch up on the full episode here.

To learn more about investing in Fund II and our vision for a carbon-neutral (or better) and climate resilient food system, get in touch here. Early-stage agri-food tech startups looking for funding, reach out here.

Disclaimer: The information in this post is not investment advice or a recommendation to invest. It is general information only and does not take into account your investment objectives, financial situation or needs. Before making an investment decision you should read the information memorandum and seek financial advice from a professional financial adviser. Whilst we believe Information is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statue which cannot be excluded.