Diligencing fund's LP base
Hello -
Potentially looking at joining a firm who is about to start raising a second fund (looks primarily at Series A - C). First fund was pretty sizeable in comparison to the number of investment professionals, but its LP base is composed of HNW individuals / family offices and it is likely to be this way for Fund II as well. While I'm super intrigued by what this fund does, I've never looked at an opportunity like this before - what are some good ways to diligence the LP base and build more comfort around future access to capital?
When considering joining a firm that is about to start raising its second fund, it's crucial to understand the composition and reliability of its Limited Partner (LP) base. Here are some effective strategies to diligence the LP base and ensure future access to capital:
Review Historical Commitments: Examine the commitment levels and follow-through of the LPs from the first fund. This can give you insights into their reliability and likelihood of reinvesting.
Understand LP Profiles: Since the LP base consists of High Net-Worth (HNW) individuals and family offices, assess their financial stability, investment history, and risk tolerance. This can help predict their behavior in future market conditions.
LP References and Track Record: If possible, seek references or case studies where these LPs have participated in other funds. This can provide a clearer picture of their commitment levels and engagement.
Direct Communication: If you have the opportunity, directly engaging with current LPs can provide firsthand insights into their expectations and their view on the fund’s management and strategy.
Market and Economic Factors: Consider external factors that might influence the LPs' ability to commit to the new fund. Economic downturns, changes in tax policy, or shifts in investment trends could affect their participation.
Legal and Compliance Checks: Ensure that all LPs have passed necessary compliance checks and that there are no legal hindrances that might affect their ability to invest.
Consult with Experienced Advisors: Engaging with financial advisors or consultants who have experience with similar funds and investor bases can provide valuable advice and foresight.
By thoroughly understanding the LP base, you can better assess the stability and potential growth of the fund you are considering joining.
Sources: How to raise a fund - what I know, and what I'm clueless about, Cap intro Q&A, Q&A: Fundraising for Private Equity, Cap Intro & Investor Relations Career Paths, Starting your own Fund/Firm, Q&A: Venture Capital Co-Founding Partner
That bot might actually be dispensing good advice - but perhaps I can beg CompBanker or APAE to confirm or provide more color since they've seen so much more :)
What level are you coming in at and what role are you expected to play in fundraising?
Depending on your level of seniority you'll need to ask different questions.
If you're a GP, the Monkey Bot actually has a pretty good list of items to review, given that part of your job is going to be fundraising.
If you're more on the junior end, you're unlikely to get a ton of information on individual LPs and their commitments. I'd ask more about their Fund 2 Strategy and maybe a few high level metrics on Fund 1.
Examples
I've supported fundraising in the past and it's no joke even for a team with a well established brand and track record.
Ad doloremque consectetur natus odit eum omnis dolorum. Magni esse quibusdam reiciendis eum quia assumenda. Modi saepe tempora voluptas velit ut quisquam. Qui occaecati cum repudiandae eum quo temporibus. Unde dolorem voluptates doloribus nihil est.
Quas ut odio quos enim id. Non saepe culpa animi aut delectus error.
Quia tempore veritatis debitis optio omnis accusamus natus recusandae. Ut aliquam vitae vel eos sit omnis dolores. Beatae nulla ut est quibusdam nostrum. Et aperiam aspernatur aut quo ut labore.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...