Building Trust: The Relationship Between GPs and LPs in Latin American Venture Capital

The venture capital ecosystem in Latin America has evolved significantly over the past two decades. One of the fundamental pillars for its consolidation is the relationship between Limited Partners (LPs) and General Partners (GPs), a partnership that, when built on trust and transparency, can drive the sector’s growth. During the investor panel organized by Boost, prominent fund managers and LPs shared their perspectives on how to strengthen this relationship and ensure sustainable returns.

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The Role of GPs and LPs in the Venture Capital Industry

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GPs are the managers of venture capital funds, responsible for selecting startups, structuring investments, and managing portfolios. LPs, on the other hand, are the investors who provide capital to the funds, relying on the GPs’ ability to generate returns. Their relationship is long-term, typically lasting over 10 to 12 years, making the alignment of expectations and effective communication essential.

According to the BID Lab report “Fundraising for Venture Capital Funds in Latin America and the Caribbean,” LPs in the region range from institutional and multilateral investors to family offices and high-net-worth individuals. The diversity of these profiles means that GPs must tailor their communication and transparency strategies based on the type of LP they are working with.

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Best Practices for Building Trust Between GPs and LPs

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One of the key aspects mentioned during the panel was the importance of transparency in communication between GPs and their LPs. This includes:

1. Regular Reporting and Open Communication: GPs should provide detailed quarterly reports that not only highlight achievements but also address challenges and failures. As panelists noted, bad news should be communicated promptly to maintain trust.
2. Direct Interaction with LPs: Beyond reports, informal communication through calls, in-person meetings, and monthly newsletters helps keep LPs informed about the fund’s status and investments. Some funds even allow LPs to participate as observers in investment committees.
3. Transparency in Decision-Making: Panelists emphasized that LPs highly value consistency in investment thesis and portfolio management. A lack of clarity or frequent shifts in the fund’s strategy can create distrust and make future fundraising rounds more difficult.

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The relationship between investors (LPs) and fund managers (GPs) is long-term (a minimum of 10 years), making transparency and constant communication essential. Honesty in sharing both good and bad news strengthens trust and prevents unpleasant surprises.

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The Future of Venture Capital in Latin America: Opportunities and Challenges

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The BID Lab report highlights that while the venture capital ecosystem in the region has grown, it still faces challenges such as the lack of depth in capital markets and the need to strengthen the relationship between investors and fund managers. According to the panelists, a key strategy to mitigate risks is diversifying portfolios by investing in different funds and regions rather than concentrating on a single investment strategy.

Looking ahead, experts agree that venture capital in Latin America will continue to mature as more institutional LPs join the ecosystem. However, to attract and retain these investors, GPs must further professionalize their management and reinforce trust with LPs through transparency, consistency, and a long-term aligned approach.

Ultimately, the relationship between GPs and LPs is a determining factor in the success of venture capital in the region. Mutual trust and effective communication not only facilitate access to capital but also help build a stronger and more sustainable investment ecosystem for the future.