(Mis)adventures in PE fundraising (part 2)

earthwalker7's picture
Rank: Human | 10,322

BACKGROUND: As mentioned before, I'm helping a smallish ($200mn) early stage VC in fundraising. Previously I'd had good success raising for a mega fund, but it goes to show how much product matters. Raising for a newish small fund is MUCH more difficult. I am going to chronicle the challenges, and am always open to advice as to how to do things better.

Lessons:
1) previously at the megafund going to conferences helped. They don't seem to help raising this smaller fund. We're not well known so LPs aren't being drawn to us. And hustling for meetings is quite difficult / painful. Going to conferences is expensive (entry tickets, flights, hotels) and the yield is too low.

2) the fund has been having more luck with emailing people on Linkedin and then trying to see if they can do informational interview with them. Emailing and asking "can you give me the lay of the land?" and having a conversation. But that's really tough because it's hard to broad the conversation (how do you know whom and how to hit up for money) and how does one frame the ask in a non-obnoxious and harmless way?

Comments (15)

Most Helpful
  • VP in VC
Feb 19, 2020

I learned a really important lesson at my last early stage shop: you don't know where your dollar is coming from.

I'll never forget one meeting between myself, my fund's senior partner, a MF regional head, and the CEO of one of the MF's portcos. The purpose of the meeting was to find ways our portfolio could collaborate with the MF's portco in a mutually advantageous way.

Long story short, we ended the meeting with the MF's portco's CEO offering to put $XM in our next fund. I was baffled. We hadn't even showed him our returns. Why?

A couple of reasons:

  1. I think he wanted a corporate development pipeline for his company
  2. I think he wanted to be able to choose our highest performers and co-invest at later stages once de-risked
  3. I think he needed our fund for personal portfolio diversification (sparing details for anonymity)

I think the pretense of having a conversation about something else helped warm him to the conversation about investing in our fund. However, asking for "the lay of the land" is not a mutually advantageous conversation, so I think the conversation might not feel reciprocal from the outset.

I realize the "low hanging fruit" takeaway is that warm introductions matter, but my point is more towards you never know what's going to yield a check. I would make two other specific points:

  1. Just keep banging your head against the wall on LinkedIn and email outreach. Cast as wide of a net as possible. There's a poster named M1 (or something) on this forum that talked about how he basically stayed on the phone for years all day every day. That is extremely effective because of volume/probability, and fine tuning practice (though I am sure you already know this)
  2. With conferences, there are many motivations at play. If you're not having success at fishing directly for dollars, go to the conferences and just build the rolodex. I realize how unnatural they are but everyone has their own WIFM motives and it's up to you to tease them out and have a conversation like the one I mentioned above, where the secondary motives ended up coming to spotlight while the meeting happened under other pretenses.

As far as the ask, I once had a high school teacher give me the best advice I've ever received. This guy was a former banker for a certain government that sold a lot of its state owned assets in the early 90s. He said: "If you don't ask, you don't get".

As far as I'm aware, you're not fundraising somewhere with unique cultural norms like Japan, so don't be afraid to make a direct ask at the end of your call. "Thanks so much for the lay of the land. This is helpful because I'm fundraising. I'd be remiss not to finish the call by asking if you're interested in investing in [fund]." You can ratchet up aggressiveness of the ask depending on your personal style ("This is helpful because I'm fundraising. Before we finish, do you know of anyone currently looking to invest in funds, or would you yourself be interested in investing?").

A few rambling thoughts but hopefully helpful reflections. I have done far less fundraising experience than you, though it has been in early stage VC, so feel free to take what insights are helpful and ignore the others. Good luck.

    • 25
Feb 19, 2020

Gotta love when someone comes in and drops a reply that is clearly incredibly relevant. Wow - this is why I still come to WSO.

    • 1
Feb 19, 2020

Love the good feedback. Thanks. It's why I keep coming back and spilling my guts on this site. Good people like you come by and drop serious knowledge. Wish you weren't anonymous. Please DM me won't you? Thanks again!

    • 1
Feb 21, 2020
VP in VC:

I learned a really important lesson at my last early stage shop: you don't know where your dollar is coming from.

I'll never forget one meeting between myself, my fund's senior partner, a MF regional head, and the CEO of one of the MF's portcos. The purpose of the meeting was to find ways our portfolio could collaborate with the MF's portco in a mutually advantageous way.

Long story short, we ended the meeting with the MF's portco's CEO offering to put $XM in our next fund. I was baffled. We hadn't even showed him our returns. Why?

A couple of reasons:

  1. I think he wanted a corporate development pipeline for his company
  2. I think he wanted to be able to choose our highest performers and co-invest at later stages once de-risked
  3. I think he needed our fund for personal portfolio diversification (sparing details for anonymity)

I think the pretense of having a conversation about something else helped warm him to the conversation about investing in our fund. However, asking for "the lay of the land" is not a mutually advantageous conversation, so I think the conversation might not feel reciprocal from the outset.

I realize the "low hanging fruit" takeaway is that warm introductions matter, but my point is more towards you never know what's going to yield a check. I would make two other specific points:

  1. Just keep banging your head against the wall on LinkedIn and email outreach. Cast as wide of a net as possible. There's a poster named M1 (or something) on this forum that talked about how he basically stayed on the phone for years all day every day. That is extremely effective because of volume/probability, and fine tuning practice (though I am sure you already know this)
  2. With conferences, there are many motivations at play. If you're not having success at fishing directly for dollars, go to the conferences and just build the rolodex. I realize how unnatural they are but everyone has their own WIFM motives and it's up to you to tease them out and have a conversation like the one I mentioned above, where the secondary motives ended up coming to spotlight while the meeting happened under other pretenses.

As far as the ask, I once had a high school teacher give me the best advice I've ever received. This guy was a former banker for a certain government that sold a lot of its state owned assets in the early 90s. He said: "If you don't ask, you don't get".

As far as I'm aware, you're not fundraising somewhere with unique cultural norms like Japan, so don't be afraid to make a direct ask at the end of your call. "Thanks so much for the lay of the land. This is helpful because I'm fundraising. I'd be remiss not to finish the call by asking if you're interested in investing in [fund]." You can ratchet up aggressiveness of the ask depending on your personal style ("This is helpful because I'm fundraising. Before we finish, do you know of anyone currently looking to invest in funds, or would you yourself be interested in investing?").

A few rambling thoughts but hopefully helpful reflections. I have done far less fundraising experience than you, though it has been in early stage VC, so feel free to take what insights are helpful and ignore the others. Good luck.

Fantastic stuff. SB

    • 3
Feb 19, 2020

one aspect I'm a bit more skeptical of - which is the ask at the end. One should have an ask, but I don't think I ought to ask them if it's a fit for them. If it was, they would say so. I think tho I can ask "can you think of folks in the market I ought to show this fund to?"

Feb 19, 2020

What conferences did you attend specifically? I've been thinking about attending a few more this coming year but I have no clue how effective they really are. I had great luck at a conference for independent sponsors in Oct after a user (thanks Ted) suggested it. It was strangely inexpensive though.

A cool hack for conferences...geofence the area using AdWords API (the default won't let you target granularly enough in geo) and run ads to people in that geo. I've had really really good results with this securing high value leads. Probably kind of pricey if you don't have the infrastructure though but very cheap if done at scale.

You end up trying the mass email method with reply.io btw? I've definitely found LinkedIn is better response rate wise, but with an overseas data miner + basic data scraping + reply.io, you can go pretty far. Check out Apollo.io too.

I don't think there's much harm in being up front with what you're looking for, especially given the current environment, but like you said...it's much more difficult without a solid product.

RE: "sales" pipelines. You might want to start using a good CRM like Hubspot/SalesForce...see where the biggest drop off is, and then refine the pitch/materials around there and see what works?
You can also upload the email addresses of anyone you're actively talking to and bomb them with ads. It's weird but it keeps your email/LI message at the top of their head.

Feb 20, 2020

I haven't tried reply.io or apollo.io
But I will try it.

Feb 20, 2020

Apollo is really cool for scraping data. It's definitely a step above the old school ghetto methods (scrapebox)! I've been surprised by how accurate a lot of the data.

Feb 20, 2020

why would I want to bomb LPs with ads? Seems like that would destroy all fundraising opportunities entirely

Feb 20, 2020

You could hit them with content/soft ads. Same thought process as enterprise/infrastructure SaaS advertising.

  • VP in VC
Feb 20, 2020

Can you say more about how to geofence an area with ads? What steps do I take to do this? How small can the area be (college campus?)? I don't know the first thing about this but I want to do this. Can I PM you?

Feb 20, 2020

You can geofence anything within an inch or two using AdWords API or a programmatic platform like Simpli.fi.

The area can be tiny, it doesn't matter. For example, on the eCommerce side, we geofence EVERY competitors physical store and then bomb people that visit those stores with ads. Same idea for conferences.

You can do this really subtly for conferences by bombing PR about your firm, so people just think you guys are everywhere and don't realize it's ads they are seeing per se. For example, on LinkedIn if I stuff your feed with news about my firm, it's unlikely you'll realize it's even ads when scrolling and just think we are bigger than we are.

You can PM me if you want, but it's not easy to do unless you have the team for it.

Feb 21, 2020

conferences I like: SuperReturn / SuperVenture, AVCJ (Asia), TRS Emerging Managers

    • 1
Feb 20, 2020

Its an old adage but quality connections > quantity connections, no? I'm starting to get involved on the investor-facing side of my company's business and that is a point that gets reiterated multiple times.

I'd echo "VP in VC"'s thoughts above that you don't know where your next cheque is coming from. Your best strategy, on a micro-level, is to pitch cleanly and concisely, everytime. Although you'll typically get more no's than if you were more aggressive/loose in your sales pitch, the investor base you gather should be stickier, which should help your / your company's brand.

Maybe try to personalize interactions that go past the initial introduction? If you can't make a specific case as to how you can help them, it'll be tough to hold their interest. But if you can highlight all the ways the you & your relationship benefits that person, you're that much closer

    • 3
Feb 21, 2020
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