As the documentation process for fundraising has evolved, LPs are paying closer attention to marketing presentations and demanding more documents, making the process more time consuming. According to placement agents and GPs, there are some documents that could always be prepared in advance. Here’s what you need to gather:
• Provide a comprehensive overview of the firm and differentiating factors from main competitors
• Create a clear and concise presentation of your track record
• Include bios of team members directly involved with the investments
James Stevenson, CFO at Baltimore-based ABS Capital Partners has been through two fundraising events during his seven years with the firm. “We’re certainly being asked for more information,” said Stevenson, adding that the greatest challenge is time management and making sure staff handles all inquiries in a timely and efficient manner.
To save time, there are a number of documents that ABS Capital has prepared that are ready to view at any time. The firm uses a password-protected web portal that LPs can access. Through software, ABS Capital makes sure it has the most-requested documents ready, including a comprehensive FAQ section that shows its company history, investment areas of expertise and its track record.
Having a web portal in place allows GPs more time to spend on developing a more targeted message in their pitch book. A good pitch book has to be crystal clear and has become the fundamental element in the fundraising process, said Jeremie Le Febvre, a Paris-based placement agent for Triago. “If the LP is not hooked by the fifth page, you’re out,” said Le Febvre, adding that the presentation has to provide detail and be attractive.
“LPs are essentially saying tell me what’s compelling about you,” said CP Eaton Partners placement agent Peter Martinson, adding that highlighting your track record is one of the most effective slides in a pitch.
A strong slide dedicated to your track record is the most visually compelling argument, said an investor relations executive that declined to be named. If a GP is part of a new firm and lacks a record of performance, they need to sell their knowledge and experience through a comprehensive bio.
“LPs are going to want to know why they should invest with you. What are the differentiating factors? It’s a very competitive market. Put everything to tease the LP and make him want to go further,” said Le Febvre. “Fundraising remains a very subjective process. LPs need to be teased.”
By preparing the most requested documents in advance, a GP has more time to commit to more demanding inquiries from LPs. GPs, however, should not see that as a negative.
According to an investor relations executive at a mid-market private equity firm, “When an LP wants more information about a fund, a GP should be thrilled. It isn’t about [the LP] exercising greater rights or power, it’s to get them to a ‘yes’ answer.”
Once the GP has gained some traction with the LP, the LP will ask the GP to fill out a customised questionnaire about the firm, the strategy, and the portfolio. These days, the questionnaire is longer, and more detailed answers are expected, said Charles Daugherty of Connecticut-based placement agent Stanwich Advisors.
“Some LPs have a standard format they want us to comply with and that could be time consuming. If it’s an LP that is going to commit $20 million to $40 million, we’ll do it. If it’s less, we don’t have the resources to fill out a detailed questionnaire,” said Stevenson.
Placement agents can help to streamline this process, because they know what all the major pension funds are asking in their questionnaires, and so can help the GPs prepare their answers ahead of time.
“Filling out these questionnaires is very time consuming, so you try to do as much as you can beforehand,” Daugherty said. “You hope that you can address 80 to 90 percent of what any investor would ask for at the time you begin the fundraise. You want to get an investor the information they need immediately. If it takes you four to six weeks to respond to a request, you lose the momentum that you gained from the meeting, and the LP has moved on.”
How the information is presented is also increasingly important. According to a former CIO of a large US endowment portfolio, “the two obvious questions that need to be addressed are ‘tell me why I should invest with you and tell me who you are.’ You have to keep in mind that the investment committee has a lot of balls in the air, we just want it short and easy to read.”
This can create challenges for GPs. “The hardest part is making things clear and concise. Everything should be cohesive—the email pitch and the formal pitch,” said Martinson.