Tangled web

Most GPs in the US private equity business know well the general solicitation restrictions that they must abide by when engaged in raising new capital (see p. 28). However, with the world's greater dependence on – and access to – the internet, coupled with the emergence of new tools and approaches toward private equity fundraising, GPs would be wise to take stock of their websites and make sure that the sites' contents are in compliance with these rules.

While opinions differ on what exactly constitutes a ?general solicitation,? a GP in fundraising mode must avoid posting information on its public website that could be considered ?priming the market,? such as – in the most egregious case – posting information about raising a fund while one is in the midst of raising that fund.

GPs should also be wary of less clear-cut types of breaches. Jeffrey Tabak, a partner and co-head of Weil, Gotshal & Manges' private equity fund formation practice, gives the example of a private equity firm that has been in the business for a number of years. This hypothetical firm has already raised a number of funds and regularly posts press releases on its website relating to transactions and new hires, even when the firm is not in fundraising mode. If the GP then begins raising its next fund, its legal counsel will advise the firm not to post information about the prospective fund on the website. But what about developments with previously raised funds that are taking place concurrently with the new fundraising? Would publicly announcing two high-IRR exits from an existing fund be considered priming the market?

Legal counsel taking a hard-line conservative approach would consider such a showing of past performance as priming the market for the new fundraising, and would therefore counsel that the data therefore should not be shared publicly via the firm's website. However, many legal counsel take a less restrictive approach and advise private equity firms to act according to precedence. ?My judgment is, if you [as a private equity firm] have a customary business practice of announcing significant events, then you ought to be able to do that even when in fundraising mode,? says Tabak. ?You have to be careful, however, about what you say about the events, and be consistent with your customary practice.?

Given the reality that an online presence is helpful – if not essential – for drumming up business or communicating with an audience, GPs are likely better off employing a risk-managed approach rather than writing off websites altogether.

Then there is the murky issue of premarketing to take into consideration. Premarketing is now common parlance for the period where a GP assesses investor interest in a new fund before circulating the actual placement memorandum. These days, more and more private equity firms are engaged in premarketing – and on a nearly continuous basis. ?To me, premarketing starts from the moment you plan to raise a new fund until you close the fund,? says Tabak. ?I tell private equity firms that they should talk to their counsel before putting material on their websites during that period of time.?

In the M&A realm, electronic data rooms are in vogue given their ability to cut costs and increase efficiency in conducting pre-acquisition due diligence. Such virtual information storage spaces are also catching on among GPs for investor relations and fundraising purposes. Having a restricted-access website that allows prospective LPs to gather information is fine, but GPs need to make sure these websites are password protected and accessible only by potential investors with whom the firm already has some sort of relationship.

More than a few private equity legal counsel would likely prefer a world in which their GP clients cordon off liabilities associated with having publicly accessible websites by simply not having them. However, given the reality that an online presence is helpful – if not essential – for drumming up business or communicating with an audience, GPs are likely better off employing a risk-managed approach rather than writing off websites altogether.