The fundraising process.
Formal investor roadshows work well with large and mature funds and companies. This is largely because the people showing up at these meetings tend to be already aware of the fund managers and investor education is minimal.
If you have worked in an investment bank, you are probably familiar with ‘non-deal roadshows’ — which is basically a short briefing with prospective investors to introduce the company. No formal communication of offers are made at these meetings though there might still be interest and queries on the company’s future direction, strategy and whether they are exploring the idea of raising capital. The same way pretty much works with funds.
Unless you are an established fund manager, the first step of any fundraising is almost always investor education i.e. to get the word out and let everyone know that you are in the market. A few basic approaches are:
Prepare and curate a fund presentation deck
There are no set guidelines, no ideal pitchbooks. Ultimately when you bring your deck into a meeting, investors will see what they like to see. I personally recommend no more than 15 pages: 30% strategy, 30% team, 40% case studies and track record. If you have additional slides, chuck them into the appendices.
Many GPs tend to overload the slide deck with generous servings of macroeconomic and industry data to try and “educate” investors, painting a rosy outlook of the geography or sector. I think many LPs will not say this but don’t you think that as large institutional money managers, they’d have good access to all that macro research?
Case studies on the other hand can be relatively more effective as they are personal, relatable and demonstrate more credibility for the presenter.
The best deck I’ve personally seen so far was at a face-to-face meeting in which the deck comprised of only two pages showing four case studies, each case study highlighting three metrics (i) entry equity (ii) exit equity and (iii) exit multiples. A 1–2 pager teaser also works just as well for less formal or extremely brief meetings, or if you are sending to preliminary prospects.
Leverage social media, expound thought leadership
Social media platforms such as Facebook and Twitter used to be associated largely with casual and informal information shared by our personal contacts. Today, this is very different. Social media has become a ‘broadcasting’ tool to showcase not only personal experiences but also professional updates — a career move, promotion, transition into a new role or even starting a new venture.
Thought leadership articles such as a written publication on a particular topic or subject can be useful in kickstarting the fundraising process. Write about stuff related to your experience, background and relate them to your investing strategy or industry. While it might all appear to be academic, this can be effective in piquing the interest of your professional circle.
Participate in conferences and speaking engagements
Investment focused conferences (especially those that have a strong focus on private equity and venture capital) have been fairly effective in elevating publicity for new funds coming to the market. Speaking and sharing your views on a panel discussion is another way to demonstrate thought leadership to the investor community. Because some of these events are covered by media, there is good chance that your new fund gets mentioned as part of the news reporting.
In addition to that, many LPs typically also attend these events to get acquainted with new funds or share their perspectives on the macroeconomic outlooks as well as where they are allocating capital over the next 2–3 years. Some conferences also offer 1-on-1 meetings with other delegates at the venue, so look out for these features when choosing which ones to attend.
While mass events may not be in the format of your traditional roadshows, they serve as an excellent non-transactional platform to meet and engage potential investors and set the stage for a more formal and orchestrated meeting down the road.
Enlist a reputable figurehead
Getting a publicly renowned senior professional on your fund’s advisory board is a good way to reinforce credibility and galvanize initial interest amongst potential investors. It also aids publicity depending on how influential your figurehead is.
However, many new fund managers equate the presence of a senior figurehead to a successful fundraising i.e. “If I have the former minister on my advisory board, LPs will invest in my fund”. Unlike the initial public offerings in which retail investors flock to buy shares of the company upon the entry of a large cornerstone investor, private funds people are not discerning and will still place emphasis on the executive team’s operating capability rather than the reputation of a few non-executive industry influencers.
Much like any fundraising exercise, it is important to ask “what does this person bring to the table?” and “how does he/she create value or fit into the overall investment strategy of the fund?”. Too many people overplay the publicity card, forgetting that real substance is in execution.
Create a digital profile and establish an online identity
Don’t undermine the importance of a digital identity.
The ease of access to the Internet these days make an online profile really easy to set up. It doesn’t cost a lot of do up a simple corporate fund website even though you have nothing to show for at the beginning.
Sometimes, a website isn’t so much as to showcase (or show off) track record but for establishing some form of legitimacy. Start a corporate LinkedIn page, get on Twitter, and fill them up with content. Good things take time to accumulate and not before long, you’ll find that your fund’s digital profile and credibility will be enhanced by the fact that it has ‘been in existence’ for some time.
It is true that many institutional LPs do not bank with new funds coming to the market. But don’t get too caught up with the fact that you are a ‘ first-time fund’. Many large PE/VC shops started as a first fund.
Perhaps one of the things that many fund managers do is to focus too much on getting the money in and forgetting about building the core business — which is to identify and seek out good companies, invest in them, and then actually selling them or exiting those investment at a decent return. The process itself looks blatantly obvious but it is always not at easy as it sounds.
“Most big recent successes (Microsoft, Apple, Facebook, Google) were started by people with skin and soul in the game and grew organically-if they had recourse to funding, it was to expand or allow the managers to cash out; funding was not the prime source of creation. You don’t create a firm by creating a firm; nor do you do science by doing science.” — (excerpt from the book, Skin in the Game, by Nassim Taleb)
And therefore by extension: You do not start a fund by simply just raising a fund.
If you actually need OPM (other people’s money) just to start a fund, then maybe you shouldn’t be raising a fund at all. Good ‘first-time’ fund managers know an opportunity when they see one and moblize their own (financial) resources to invest even if there are no LPs present.
Real track record ultimately speaks louder than marketing pitches and beautiful presentation decks. If you can demonstrate lucrative returns on projects, this is effectively tangible proof that the your team and investment strategy works, and institutional money will naturally come.
Starting a fund can be a costly process — no different from launching a start-up. It will not be easy, so do sufficient homework before taking that leap. Learn from the experiences of others and always remember that the best way to sell is to show that the product works.
Originally published at https://www.kennyng.com on January 3, 2021.