There’s more than 2,000 of you out there looking to raise a whopping $740 billion in capital, according to Bain & Company’s 2015 global private equity report citing Cambridge Associate research.
And unless you’re part of the lucky minority able to raise multi-billion dollar funds at lightning quick speed, the average amount of time needed to raise a new fund still hovers around 17 months – i.e. little has changed since the global financial crisis, the report said.
Fundraising will always be determined by past performance, the right team in place and a helping of luck and market timing, to name a few obvious factors, but the close-calls may also be shaped by less obvious things, such as who commands the room during a fundraising pitch for instance. Which brings us to our top five mistakes GPs commit while on the fundraising trail:
Give others a chance to speak: It’s tempting to have the firm’s senior figurehead – the smooth talking individual who rose through the ranks with charisma and experience – to field most questions during LP meetings, but really the person speaking should always be the person best able to answer the question. LPs tell us they can sense when a junior partner, or someone relatively new, takes a backseat during interviews as a sign of respect to the veterans. It may be worth discussing in advance that all people present are encouraged to speak.
Ditch the boring PowerPoint: When was the last time you enjoyed a 30-page slideshow? Right, and for LPs they can be just as dull. As far as presentations go, investors want to get right down to business (they’re bound to have studied the PPM in advance) and get something granular and also much more personal out of that first introductory meeting. After a few slides explaining the basics, it’s better to tell your story with eye contact and more natural-sounding dialogue.
Don’t overestimate the power of early-bird discounts: On the one hand, offering investors first-round sweeteners can help build or sustain fundraising momentum, which is crucial now that it’s become harder to hold LPs’ interest and maintain relevance. But on the other, less visible hand is the air of desperation some LPs see in the offer. Despite the attractiveness of a management fee that can be up to 10 percent lower, some say the concept of an early bird discount raises questions about the credibility of the GP and its ability to raise the money. There’s a balance there, and it can be tough to find.
Do your homework: Not every LP is the same, making it paramount to understand an investor’s portfolio needs before taking a meeting. An LP with heavy exposure to US mid-market funds for example isn’t interested in hearing about your North America growth fund no matter how great your pitch is. Likewise, an LP insistent on a certain degree of ESG reporting doesn’t want to waste it’s time with managers who consider it less important.
Be aware of the ‘data miners’: On the flipside, GPs should be cautious to protect their own valuable time by avoiding LPs that take meetings just to gain market information. These “data miners” don’t have any genuine intention of making a commitment (they may have no spare capital to commit or are already over-allocated), but wish to engage as many managers as possible to keep their options open and stay abreast of market terms.
Want more investor relations strategies and insights? If so, readers are encouraged to check out the 2015 PEI Investor Relations and Communications Forum in New York between June 9 and June 10. Now in its tenth year, the conference is the premier event for anyone responsible for the vital functions of IR, fundraising and communicating with LPs, media and other important stakeholders.