More LP transparency is overdue

Startup founders deserve to know who their investors’ investors are

With capital aplenty for startups over the last few years, the balance of power between investors and founders has been tilting toward the latter. This manifests itself in several ways along a startup’s lifecycle, from more favorable early-stage term sheets to founder-friendlier public listing terms.

There’s an area that remains untouched, though: The anonymity of a fund’s limited partners (LPs). Rarely if ever do VCs fully disclose who their LPs are, even to founders they invested in.

Both LPs and VCs have reasons to want to keep their involvement confidential. But when these reasons aren’t solid enough, my prediction is that this will change.

The main driver, in my opinion, will be founder pressure.

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With increased competition for the hottest deals, VCs increasingly have to sell themselves to founders they are hoping to back. In this context, the old model in which founders have to undergo thorough due diligence while not getting to ask a single question seems outdated. Now, when entrepreneurs get the chance to start prodding, odds are they’ll ask about LPs.