Jun 26, 2020 · 40m · 20vc
20VC: How Fundraising For Funds Has Changed in The World of COVID, The Benefits of Managers Selling Part of Their GP & How To Think Through Your "Minimum Viable Fund Size" with Lo Toney, Founding Managing Partner @ Plexo Capital
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In this episode of The 20 Minute VC, Harry Stebbings interviews Lo Toney, Founding Managing Partner at Plexo Capital, exploring fund mechanics during market volatility, emerging manager fundraising strategies, GP stake sales, and Plexo Capital's hybrid fund-direct investment model.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 23.3% of the talking time here. How this is scored →
Harry as informed peer 4.3 Guest teaching 4.1 Guest disagreement 1.3 Harry pushing back 3.3
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 5:04 Lo reframes host's simplistic entrance advice
Lo politely but firmly rejects Harry's 'just be a VC' stance, pointing out that context dictates advice and that operating experience provides critical empathy and product skills.
Hardest push from Harry ▶ 30:00 Harry challenges Plexo's direct allocation modelHarry explicitly pauses the flow ('Can I be really annoying and push back...') to challenge how a hybrid fund can secure direct allocations against aggressive incumbents like Sequoia and Benchmark.
Biggest teaching moment ▶ 16:36 Lo delivers a masterclass on GP stake structuresLo clearly educates the host on the distinct entity structures (Management Co, LP, GP) and how private equity GP stake sales transfer to micro-VC firms.
Harry holds his own ▶ 30:00 Harry demonstrates deep market knowledge on VC allocation pressureHarry demonstrates keen market awareness by calling out how top-tier multi-stage funds move down-market to preempt seed allocations, forcing Lo to detail his reserve discipline.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Lo Toney's Journey from Operating to Venture Capital | 3 | 4 | 2 | 3 | Harry offers a blunt opinion that aspiring VCs should simply jump in without needing prior operating experience. Lo gently reframes this perspective, explaining that advice depends on context and that operating experience provides valuable empathy and product frameworks. Harry acknowledges Lo's more nuanced approach. | |
| Navigating Fundraising and Minimum Viable Fund Size During COVID-19 | 5 | 5 | 1 | 4 | Lo outlines how emerging managers should establish a minimum viable fund size during crisis conditions. Harry pushes with an informed LP perspective, asking how a manager justifies shifting from seed to pre-seed strategy without alienating early LPs. Lo agrees with the challenge and details transparent communication strategies. | |
| Strategic Approaches to Fund Closing Thresholds | 4 | 5 | 2 | 2 | Harry proposes taking money off the table with frequent rolling closes as capital comes in. Lo nuances this tactic by explaining LPA legal threshold requirements and anchor LP restrictions, while agreeing rolling closes make sense in uncertain markets. | |
| Evaluating GP Stakes and Selling Equity in Management Companies | 3 | 6 | 1 | 1 | Lo provides a detailed breakdown of GP stakes and management company equity sales, drawing parallels between private equity norms and emerging venture funds. Harry prompts the discussion to explore how emerging managers should handle anchor demands for management company equity. | |
| Re-evaluating GP Commitments to Foster Diversity in Venture Capital | 6 | 3 | 1 | 5 | Harry aggressively criticizes rigid 2-3% GP commit expectations, arguing they act as a major barrier to entry for diverse and non-traditional founders. Lo strongly aligns, sharing an anecdote of a female GP challenged on her commit and calling for causal data on GP wealth versus performance. | |
| Hybrid Fund-Direct Investment Models and Allocation Strategy | 7 | 4 | 2 | 7 | Harry explicitly interrupts to push back against Plexo's direct investment thesis, arguing that aggressive multi-stage firms like Sequoia squeeze out smaller funds on direct allocations. Lo concedes that deal allocation is extremely difficult and details power law math and portfolio construction strategies. | |
| Quickfire Round: Insights, Recommendations, and Investments | 2 | 2 | 0 | 1 | A friendly quickfire round covering favorite books, board member experiences, and Lo's recent investment in PlayVS. The tone is highly collaborative with light banter. |
Statements from this episode (16)
Toney: Product management playbooks directly mirror early-stage VC investing
“The Playbook for product management is very similar to early stage BC. The ability to understand a market and where opportunity might exist because of a problem. How many of those people or enterprises have that problem? What are the current solutions they're …”
Toney: Institutional LPs will complete pre-approved venture fund commitments
“If the manager has a prospective LP institutional that has already gone through the approval process, what I'm hearing from institutional LPs is they already have their budgets and plans in place. They will complete those deals.”
Toney: Fund managers should accept LP capital immediately when offered
“If a GP has the ability to close with an LP, if an LP wants to give a GP money, take the money. That's always been my philosophy and approach.”
Toney: Anchor LPs often negotiate minimum closing thresholds into LPAs
“Often if there's an anchor LP, they anchor themselves might actually negotiate into the limited partner agreement, the LPA, that a close cannot happen until a particular threshold relative to the target size has been met or absolute number.”
Toney: Micro VC fund-one GP commitments typically average 1% to 2%
“That commitment can range, but they typically have to commit some of their own capital To the fund, one to five percent was probably the norm. One to two percent in the micro VC world, especially for a fund one.”
Toney: Private equity GP stakes typically range from 10% to 20%
“In the world of private equity, typically the stakes given are 10 to 20%.”
Toney: First-time VC fund managers should plan on two years without income
“We had already told GPs to plan on going two years without income.”
Toney: Emerging VC managers should sell GP stakes to relieve financial pressure
“So I'm a big proponent, and I think for emerging managers in particular, it helps take some of the financial pressure of having to go a couple years without salary while still being able to build infrastructure and potentially being able to help Cover a portio…”
Stebbings: Standard GP commit expectations prevent diversity in venture capital
“The standard is also a fifty-year-old, largely male, with operating experience of It's dirty years and has built up a huge ton of liquidity that massively prevents anyone diverse or with a non-obvious background coming into this industry from actually creating…”
Toney: LP GP commit requirements should scale with manager net worth
“I think a better way to think about it is, how much is the commit relative to what the nest egg is for the GP? How much is the GP going to actually feel this one, two, three percent?”
Toney: No causal data proves personal wealth is required for VC success
“Someone needs to show me the data, right? And I'm not talking anything that's correlated. I'm talking about causal data that if you're not rich, that you can't be a successful VC, because I don't think that data exists.”
Toney: Plexo Capital plans to expand into secondary LP stake purchases
“If we like the GP and it's in between funds, we are looking in the future to do secondary opportunities to purchase other LP stakes and GPs that we like that are building franchises.”
Toney: Seed and Series A annualized median returns are only 5.6%
“Given that the last 20 years, I don't know, We've probably seen seed series A, 23% annualized returns on the mean versus like 5.6% on the median, which by the way, you'd never incur this level of risk to just get 5.6%.”
Toney: Early-stage VCs must maximize initial ownership since follow-on buy-ups are unfeasible
“The ability to be disciplined, have the right portfolio construction model, recognize that, you know, you need to get as much ownership on the front end as possible because you're not going to be able to buy up. Those are all the things that are most critical”
Toney: Reginald Lewis executed the first $1B Black-led LBO deal
“And it was the first billion dollar transaction done by an African American.”
Toney: VCs should join early to build multi-fund track records
“Get into the venture business as early as possible. You're going to, you're just going to take a minute to figure out whether or not you're good. And when you have some wins, that's helpful because you'll need to be able to negotiate for better economics and s…”