hey all, so I've been helping a fund out of the East Coast in fundraising.
If I can succeed, I can join the fund. However I'm really struggling to get them meetings. So I thought I'd throw this problem to the group - and see if you guys have found unique ways of hustling up meetings successfully. I had tried looking up all the LPs in a given city in Preqin and Pitchbook, and then emailed them cold, specifically highlighting whom we knew in common via Linkedin. Low/no yield.
I am now trying one-by-one connections on Linkedin. It's a young-ish fund (2nd fund, decent IRRs on fund I but no exits yet). Keen to have the group's advice, because as of right now I'm failing.
I have been using Linkedin Sales Navigator to group contacts by city as well. I guess it goes to show the value of keeping the network fresh and to keep in front of people with messages and information. I have met hundreds of LPs, but haven't done the best job keeping in touch and cultivating the relationship. Now that I need them to take my email seriously in a hurry, it's been difficult.
They have co-investment deals in-hand as well. The fund has invested in some good ones, pretty high-profile, etc. I could try to use that to open doors. But I don't think I can just throw this across the transome and cold-intro it that way.
Anyway, I'm seeking the group help. It's really hard for young funds to raise, and the struggle is real. Frankly, I think it's fairly easy to write checks in this industry but gathering blind pool money? That's really hard.
Thanks for the candid info. Don't have anything to offer, but following this for my own benefit - hope the senior monkeys can chime in.
it's true. Beyond a shadow of a doubt. It's a bit tough though to come up with an excuse to reach out to an LP all the time. Especially if they are not geographically proximate. One has to come up w/ value-additive messages to excuse the outreach. If someone's got a strategy for this tho, I'd be keen to learn. I'd love to find reasons to ping the LPs on the semi-regular, and keep the dialogue going.
Form a personal relationship and keep your funnel open with them by constantly sending them different types of things - can be related to doing business together or not - could be something as minor as a sports article if you discover they’re a hard fan of some team
Isn’t it a bit early to be raising when there are no exits? Legit asking, I may be totally wrong there, but my limited PE experience says no exits on fund 1 effectively means no track record unless some of the port co’s have other verified markers of cash flow or valuation. Co-investments in hand refers to what exactly, do you co investments for planned deals for fund 2? Or follow on co-investments into existing fund 1 port co’s that peg valuation?
Anyways sorry I had more questions than answers, one thing I’ll say is you’re showing a lot of hustle and it’s a good environment to be raising based on headlines about institutions needing more PE. This is a reach but your post slightly suggests you’re maybe leading more with the personal relationship than the strengths of the fund. Which is usually the better way, but not always. Some LPs just want to be wowed right away with the opportunity.
hey man. No, often it takes years for an exit to happen. And if you want to keep the lights on and the team employed, you have to raise your next fund, soon as the last one is mostly deployed. Would it be easier to raise once there were exits? Undoubtedly. Is that always realistic? Generally not. One of the catch-22s of PE I suppose.
The co-investments refer to the opportunity to participate in the follow-on investments to the fund's existing deals. When making an investment, a GP will pretty much always secure the right to invest in a company's next round, generally at a discount to that round's valuation. In speaking to LPs I'm trying to say "we can also show you love by giving you access to this super-over-subscribed growth round in a hot company" in order to entice them to look also at the fund.
Thanks, that makes sense. And I know some LPs are very sensitive to that ability to deploy further in co-investments. I wonder aloud if other LPs are less sensitive to that and more sensitive to current IRR, in fund 1, with IRR obviously not being exit-based but more of a soft M2M from follow-on investments/financings or any other evidence of value. There's gotta be a word for this . . unofficial IRR or something.
In addition to what was said about keeping the lights on, which is more practical and not tied into the actual investors, many times with a first time fund a large part isn't just the returns so much as proving you can deploy the capital. First time funds generally will be a lot smaller and more concentrated. So if you can show that you were actually able to put the money to work and the investments look solid you can quickly raise a second or even third fund before any exits. A lot of people are saying you need the returns but that isn't really true. Clearly anyone giving money to a first or second fund knows they aren't betting on past returns so much as the team or strategy.
Don't have any advice, but interested to see what others have to say. Refreshing amount of candor - good luck!
This just comes from discusssions from PE partners that are family friends: - Fundraising is all about repeated business - 90% of capital comes from LPs that already invested in a previous fund. Go back to them, get the ball rolling for fund 2 and then reach out to further LPs saying you already have funds that are commited. - As mentionned above it is all about returns on the latest fund - whilst it is true that to keep paying wages etc you need to have a second fund, maybe they should consider a partial exit to one of their current LPs - ie selling 20% of the equity of a portco to be able to show a realised IRR that was strong. Family friend used this trick on their post-crisis fund to show that IRR on the first post crisis fund was strong eventhough the 2006-2007 vitage IRR was very low without having to fully wait for exits. My guess it that you could suggest that to the fund Best of luck!
I tried posting this before but for some reason it got deleted, so this will be more brief:
How about selling a strip of the current fund to a Secondary buyer (at a discount to most recent values), with buyer providing a staple into a new fund. Achieves 3 things:
1) Current LPs are provided with some liquidity, hopefully to reinvest into new fund 2) Secondary buyer gets instant access to diversified portfolio at a discount. The staple is less interesting, but obviously without it there is no deal 3) The GP has dry powder to continue doing deals.
Maybe the Secondary buyer can also participate in some of the "ondeck" coinvestments on a no fee/carry basis.
I assume this is Venture, but the more late stage/growth it is, the easier it is to get done. Also, needs reference-able co-investors.
PM me if you want to discuss further.
Why don't get a placement agent involved like a private funds group? Have seen them take on mandates for no name funds before. I am aware you are supposed to be the one raising funds but if you really can't do it and want to seal the deal then I think that has to be done?
Also, you mentioned looking up LPs via Preqin/Pitchbook. The list in there is definitely not complete. A private funds group recently shared with us some information on potential LPs in my region and we found that many LPs were missing from the Preqin database. eg. some family offices are so low profile they don't even have a site or profile so they may not show up on Preqin.
And on your point about needing a reason to follow up with LPs, I am on the receiving end of such bs and most of the time it is just some useless update (eg. this asset marked up and bringing fund to 2.1x, or funded % of the fund is now 50% etc). Point here is it doesn't have to be a meaningful update?
Good luck.
well, getting a placement agent is a tricky thing. First, the other guys in the fund are getting meetings, so not sure they'll see the value in an agent. An agent will take 1-2% success fee, often on total capital raised, so they would cancel-out the mgmt fee, thereby making the firm harder to operate. Also a good placement agent is difficult to attract to a first-time (or 2nd time) fund, esp. a small one.
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