Friday Letter: Fundraising blunders(1)

Letting the firm’s senior leadership do all the talking and placing too much faith in ‘early-bird’ discounts are among the things fundraising managers should be mindful of

There are more than 2,000 of you out there looking to raise up to $740 billion in capital, according to Bain & Company's 2015 global private equity report, citing Cambridge Associates research. And unless you're part of the lucky minority able to raise funds quickly, such as European midmarket investor Equistone for instance, the average amount of time needed to raise a new fund still hovers at around 17 months – little changed since the global financial crisis, the report said.

Fundraising will always be determined by past performance, the right team in place and a little bit of luck, to name a few obvious factors, but the close calls may be determined by less obvious and 'softer' things. 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 figureheads -smooth-talking veterans with charisma and experience who seem to have been in charge forever – 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 actively contribute.

Ditch the boring slideshow: When was the last time you enjoyed a 30 page slideshow? Right, for LPs they can be just as dull. As far as presentations go, investors want to get right down to business (presumably they already looked at the slideshow in advance) and want something more personal at that first introductory meeting. After a few slides explaining the basics, it's better to tell your story with eye contact and 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 of course crucial given all that fierce competition. But on the other hand is the air of desperation LPs may 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 cash. Naturally there's a balance there, but 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 its 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.