New York Forum: GPs face slog to win fundraising ‘beauty contest’

Panelists share tips including proactive LP relationships, cross-team support.

The ever-steeper climb that sponsors face in fundraising weighed on the minds of GP executives who spoke at the Private Funds CFO New York Forum last week, where they shared tips on how to adapt.

“My great big insight is just it’s super tough out there, and so just trying to maintain quality engagement on a very regular basis is really what’s gonna put you on the shortlist for the beauty contest,” a buyout panelist said. “That’s another word that investors keep referring to it as – it’s a beauty contest.”

And getting a foot through the door to land new LP relationships has become a big challenge.

“If you’re talking to an investor who has room for a new manager relationship, pretty universally they’re saying, ‘maybe we have room for one new name or two new names,’” said the panelist.

Indeed, data from affiliate title Private Equity International shows that worldwide PE fundraising dropped for a second consecutive year in 2023.

Total capital nabbed for final closes stood at $785 billion, an approximately 5 percent decline from 2022. And the results for final fund closes are grimmer – there were only 1,755 last year, a 20 percent drop that took the number to its weakest amount since 2019.

A venture capital speaker at the confab noted that fundraising times have grown over the past five years. But it has gotten particularly hard in the last year, with some CFOs in the event saying one and a half to two years is common right now, as opposed to the three or four months it took when the market was at its hottest.

The VC panelist cited pre-marketing as contributing to prolonged fundraising periods.

“That used to be a six-month process for me, and now it’s in triplicate. It’ll take 18 months.”

The buyout speaker noted that successfully establishing relationships means proactive and ongoing engagement with potential investors.

“You’ve gotta show up early and often,” she said, adding that CFOs should “look broadly,” for investors, and that repeat visits with potential new investors are especially critical in distant regions that are newer to the asset class, like Asia and the Middle East.

Another VC panelist shared these sentiments about ongoing relationship development.

“It’s just very hard to just sort of pop in day one and ask for that check,” he said.

The executive noted that his firm is formalizing its fundraising apparatus.

“Fundraising for us historically has been very transactional and been very founder-led.”

He also remarked that finance and operating staffers need help for a formalized approach to work.

“You need to be able to support them with the information that they need to be able to go out and tell that story and to respond to the investor requests and all of the due diligence and other things that come with it,” the VC executive said.