Those who invested on day-1 commits for a longer period. Investors put money on day-365 should not get the same return in terms of amount. The fund return percentage might be same but the cash allocation/accumulation for return should take into account the time value of money. Any one with an experience with returns delivered to investor?
Venture Capital is a long-term investment. VERY long term. If a fund gets an early exit, say within a year of investment, it's likely to be a bad investment such as an aquihire. It's improbable that a great exit that can return a pre-seed or seed fund will take place in 365 days post-investment. The most likely scenario is that the investments that will generate venture-style returns will take 10+ years to exit.
This is why sophisticated LPs are unable to diligence 'track record' until the GP is on Fund 3/4. This is because good exits that generate venture-style returns often take a decade to generate DPI back to the fund.
With this context in mind, a fund has not been significantly de-risked when an LP joins the fund a year after the 1st close. Sure, maybe LPs that join later closes can diligence some of the deals that the fund has done, as well as their operations, which can help them do better DD. But, from a returns perspective, there is not that much difference.
By trying to penalize LPs that come into later closings, you're effectively shooting yourself in the foot because it's the large and more risk-averse LPs that often choose to invest at that stage. By creating this unnecessary friction to appease small HNW LPs who came into the 1st close and don't have enough context to evaluate if this is fair or not, you're making it harder for the larger and more sophisticated LPs to invest.
This is why sophisticated LPs are unable to diligence 'track record' until the GP is on Fund 3/4. This is because good exits that generate venture-style returns often take a decade to generate DPI back to the fund.
With this context in mind, a fund has not been significantly de-risked when an LP joins the fund a year after the 1st close. Sure, maybe LPs that join later closes can diligence some of the deals that the fund has done, as well as their operations, which can help them do better DD. But, from a returns perspective, there is not that much difference.
By trying to penalize LPs that come into later closings, you're effectively shooting yourself in the foot because it's the large and more risk-averse LPs that often choose to invest at that stage. By creating this unnecessary friction to appease small HNW LPs who came into the 1st close and don't have enough context to evaluate if this is fair or not, you're making it harder for the larger and more sophisticated LPs to invest.