Cracking the code: spinning out in tough economic times

Starting your own alternative asset firm is difficult. Doing it in our current economic times is an extraordinary event. In a market where LPs are capital constrained and there are nearly 1600 funds competing for their dollars, normal rules don’t apply. Whether you’re from a large, name-brand firm or a small one, as you start the new venture, you are going to be shouldering more rigorous communications duties than you ever have before. Getting the communications strategy right is a lot more important than you might think – and not as easy. Here are some pointers. 

1) No battle plan survives first contact with the enemy

Communications doesn’t exist in a vacuum. Starting a new firm is a step-wise, involved process that happens over an extended period of time – not all at once – even though firm launch announcements might give the opposite impression. A firm’s communications strategy needs to support this effort every step of the way and adjust to changes in the environment throughout this period. The strategy must be highly responsive as different audiences take precedence and key messages change kaleidoscopically as the partners of the new firm refine their offering in response to investor and market feedback. Throughout the process, there needs to exist an ongoing dialogue between the founders and their advisors that constantly informs and edits the firm narrative as it develops. Ideally, this process should start even before the partners leave their old firms. 

2) George Orwell: Private Equity and the English Language

Make sure you can explain what you do. This sounds easy but many people launch firms before they can cogently articulate their strategy. The narrative should be straightforward and accessible, employing clear language devoid of overused industry clichés. The average person should say, “I get it. I know what they do.” The first challenge here is differentiation in a crowded market. With so many firms to choose from, why should LPs care, let alone invest, with you? Further complicating matters, the esoteric investment strategies that many new firms (and funds) are turning to today are highly complex and difficult to explain in three pages, let along three sentences. How many investors and journalists readily comprehend the difference between say, “control distressed debt” and “control-oriented distressed”? Yet articulating the particular nuances of your strategy is essential. Whether it’s a fund with a new strategy at an established firm or a new firm, the new strategy needs to be clearly tied to your experience and track record. That conceptual bridge must be build for investors. They will not build it and it won’t build itself. 

3) The boy who cried wolf

Time the firm announcement with real news. Are you ready to make a big splash?  Perhaps a slow reveal would be better? When starting a new firm, most people’s gut reaction is to put out a press release immediately. But let’s be honest, as gratifying as it may be, getting a new name and logo isn’t really news, no matter who you are. Even for the most savvy, well-known investor who has decided to strike out on his or her own, the period of time between departure from the previous firm and the first close is critical. This is the time when the founders are faced with fundamental – existential, in fact – questions about the firm and its strategy. This is a time for intense strategic communications maneuvering, but not necessarily press releases. Make the big splash when the firm has established itself in a real, credible way, by tying it to or timing it with more substantive news.

Announcing the firm prematurely could have a number of negative consequences. First, you start the public’s fundraising clock. 12 to 18 months later people will be wondering why you have not completed your fundraise. Second, you’ve created a media target during a time when you can ill afford the distraction. You may want to create a period of calm (and perhaps and air of mystery) during which the firm can adjust and tweak its investment strategy after initial investor meetings, without having created a public record that could be contradicted down the road. You may also have to deal with the partners’ new relationship with their old firm. This should be caste in the most positive light possible, but the question of why you left will always linger and the best answers may ring hollow. You don’t want these issues to interfere with the new firm’s launch announcement. Ideally put some time and space between the old firm and the new venture. 

 

4) Newton’s laws of motion: (Mass)(Velocity) = Momentum

Build on momentum. Once you reach a critical mass and do launch a public communications effort, keep the profile-building momentum going with a steady drumbeat of announcements trumpeting all manner of news about the firm: transactions, new team members, a new office, etc. The media, the public and the LP community will view new investments, personnel hires, establishing a permanent address as a sign of legitimacy. Moreover, these activities are opportunities to underscore the key message and to position the firm and its partners as the next generation of industry leaders. In addition, this creates a public record of the firm for journalists and investors in the future. 

5) Lapis philosophorum – the philosopher’s stone

When it comes to materials, get the pitch book ready first. This will be the vehicle by which you conduct a series of early conversations about your new firm. Getting the pitch book together is the best exercise to establish the key message platform of a new firm. Much of the feedback you receive on early pitch meetings will help to refine and support the fundraising strategy reflected in the pitch book. Constant dialogue with the firm’s strategic communications advisor is essential during this process and will help establish the order, focus, and “look” of the presentation.  

• -What name recognition do the partners have? 
• -How difficult is it to articulate the investment strategy? 
• -Is the market opportunity understood?

The answers to these questions will help establish the proper progression of the document, a sense that might change once you start sitting down with potential new investors. This early period is critical, but you must be prepared to actively define and redefine the image of the firm throughout fundraising and, in fact, the life of the firm.