Chief financial officers are being asked to take on a bigger role during the fundraising process. But what do these new responsibilities entail exactly; and how does the CFO find time to make it all happen?
Gerry Esposito’s response:
There are two primary roles that I play during the fundraising process as chief financial officer. One, I’m the overseer of all due diligence material. So our performance numbers need to be precise and our data room completely accurate. And then as chief compliance officer, I make sure that the marketing materials are clean and fully reviewed. At an intersection of those two roles, and perhaps the most challenging, I’m also the point person for LPs when there’s negotiation around specific fund terms.
The second role I play is making sure all our policies and procedures are sound and up to date. During the due diligence process, more investors are requesting a tour of the office to meet and interview the finance/operations team. It can be a thankless job, but it’s becoming a much bigger factor in investors’ GP selection process. And again as CCO, I’m also answering questions about the SEC registration process. Since Dodd-Frank, investors want to know if the SEC has visited us (they have) and what was the outcome of that inspection.
One thing to note is that investors are short staffed and much more selective about who they partner with. It’s the CFO’s job to project an image that you’re aware of everything happening at the firm and that everything is under control. It might have been the case before that some back-office deficiency would never result in a LP backing out of a commitment, but that’s simply not the case today. Even re-ups are becoming more difficult for firms.
One bit of advice I would offer CFOs during the fundraising process is to make good use of your data room. With our system, we can monitor how long investors have been in the data room and what documents they’ve downloaded. That sort of gives us a heads up about how serious some investors are about committing, or how far along they are in the due diligence process. For instance if a LP says they’re very interested in your fund but has never opened an electronic document, you may want to rethink your negotiation strategy in light of the facts.
A last point I’d mention relates to time management. I’d like to say that there was some way to squeeze all the fundraising work into your schedule, but the fact is the CFO’s schedule is already jam-packed. Just recently we wrapped a fundraising period that lasted six months. And only now am I able to begin working through a backlog of items that could wait – you need to give priority to fundraising matters. So for instance I wouldn’t recommend opening a new office or begin a new technology project until you reach that final close. It’s just the nature of the beast, but it’s also testament to the growing importance the CFO plays in the firm’s fundraising success.