When I ask most venture capital firms about who their limited partners are, or the investors supplying the money for their funds, I get the same cryptic response: endowments, pension funds, family offices, and high net worth individuals. It’s a closely guarded secret for most VC operations. The New York-based Lead Edge Capital takes a different approach: It proudly lists the more than 700 individuals who back its fund right on its website, though it doesn’t include its institutional backers.
The sheer number of LPs is a staggering figure for any venture firm, and especially one with a relatively modest $5 billion of assets under management. But Nimay Mehta, Lead Edge’s managing partner, swears by the strategy, even as he gears up to raise the firm’s seventh fund this year, which will entail more than 700 calls. He affectionately referred to the labor-intensive process as “an insane amount of brain damage.” But in the increasingly competitive field of software investing, it’s what sets Lead Edge apart from its peers.
Mehta is well accustomed to the challenge of picking up the phone. He comes from the Insight Partners mafia—another New York venture giant that helped pioneer a bottom-up approach to sourcing, in which early-career analysts find deals through cold outreach.
Mehta was a Harvard undergraduate in 2007 when he saw a job listing at an entrepreneurship club for a part-time internship at General Catalyst. He cold-called the person who put up the listing and got the job: an unglamorous position paying about $15 hourly devoted to putting leads in a database, as he recalls. He moved to New York in the fall of 2009, with the financial crisis raging around him, and parlayed his experience at GC into an analyst position at Insight, joining the “dialing for dollars” team, as he put it. “It’s some of the best training you can get in investing,” Mehta told me about cold calling startups. “Your love and appreciation for really great businesses was entirely born out of talking to bad companies.”
“It’s like going to the gym,” he added. “Every single phone call is a rep.”
During his time at Insight, Mehta was introduced by a classmate to a former Bessemer analyst who was starting a venture firm and looking to make his first hire on the investment team. Mehta joined in May 2011, and Lead Edge launched its first fund the next month.
While Lead Edge does still raise around 50% of its capital from institutional investors, 95% of its limited partners by logo are individuals—and that was part of the initial design of the firm. Lead Edge wanted to build its LP base around people who could be helpful to its portfolio companies. “It was really a function of just my sourcing experience and having spoken to so many founders and CEOs myself,” Mehta told me.
The number also ballooned over the years, from around 100 LPs in the first fund to 750 today—a who’s who of Fortune 500 executives, entrepreneurs, and advisors to major companies, from the former CEO of Macy’s to the CFO of Workday. “Building a firm like ours is like trying to get a satellite into orbit,” Mehta says. “Objects in orbit stay in orbit, but getting them to orbit is really, really hard to do.”
He points to Lead Edge’s growth investment in the tax software company SafeSend in 2021 as an example of the strategy’s success. After the firm acquired a 65% stake in the platform, Lead Edge asked its LPs to demo the software to their accountants, which resulted in millions of revenue. Lead Edge sold the business to Thomson Reuters for $600 million earlier this year. Other notable exits for the firm include Asana and Uber.
While many venture firms are struggling to win the attention of LPs amid a continued liquidity crunch, Mehta argues that Lead Edge’s unique approach helps foster close relationships with its backers—he says the firm retains 95% of those backers between funds. That can also be attributed to the firm’s returns—Mehta says Lead Edge’s first five funds measure in the top quartile on a DPI basis, a commonly used metric in venture capital for the amount of money returned to investors.
The bigger question for the firm, especially with its Insight and Bessemer DNA, is size. Lead Edge is a fraction of the size of its progenitors, with around 80 people on its team. Still, it is trending in their direction, with the goal of raising an even larger fund than Lead Edge’s sixth, which totaled nearly $2 billion. When I asked Mehta whether his goal is to reach Insight’s scale, he gave a diplomatic answer: “My ambition is great returns.”
Though Mehta insisted that Lead Edge doesn’t have a master plan, the firm’s army of backers is only growing, especially as its portfolio executives have successful outcomes and join the LP base—70 in total. “That’s the flywheel,” he says.
Leo Schwartz
X: @leomschwartz
Email: [email protected]
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This story was originally featured on Fortune.com
