The Fundraising Clock Is Ticking
There should be a graph illustrating that the longer a first-time manager attempts to reach fundraising goals, the more skeptical investors become of the opportunity. Sadly, the inability to execute a fundraising campaign can cause investors to doubt whether the manager can execute on their strategy, negatively impacting the likelihood of reaching the fund’s AUM goals. Depicted another way, a manager delivering an average presentation without the support of professional collateral material will have a hard time raising money. The longer they are in the market seeking capital, the more challenging the fundraising process will become. Even a manager’s strongest business relationships will have little empathy for uninspired stories supported by unprofessional collateral and presentations that miss their mark. High net worth individuals, RIAs and family offices screen dozens of managers a month in their ultimate quest of preserving and growing wealth for their clients. This screening process is a high priority, taking second only to overall portfolio performance. Simply put, managers with poorly conceived “go-to-market” strategies are likely to struggle, potentially damaging long-standing relationships, and invariably disappointing both themselves and their most viable prospects.
When Investors Become Mentors
One of the more common faulty approaches to fundraising relies on engaging key “influencer relationships” of the fund manager too early in the process, rather than waiting for a fully-developed presentation and a little bit of momentum on their side. We often refer to this haphazard approach as the “guys who know guys” strategy. This strategy usually involves a new manager beginning by reaching out to a Rolodex of long-standing relationships with the intention of collecting the low-hanging fruit of a new campaign. These contacts are often targeted not just for a seed investment, but also for referrals to others who may have an interest in participation. We can’t begin to list the number of times we have seen new fund managers craft their own documents and pair them with a poorly-constructed fundraising process before they have thought through all the dynamics associated with the new opportunity. Excitedly, they take this untested game plan to the most influential members of their network, only to be met with questions they cannot answer and challenges they have not considered. This negatively affects the investor’s confidence in the manager’s ability to run a successful firm. Unfortunately, these meetings often end up evolving into coaching sessions on how to improve the presentation, materials, or strategy. While the critique can be beneficial for improving future meetings, the manager usually has squandered the opportunity to convert this highly-valued prospect into an investor.
One Chance for a First Impression
By the time the manager has revised their approach and is more prepared to meet investors, they have likely exhausted many of the most valuable contacts in their Rolodex. It is usually at this time that managers realize the uphill battle they are fighting and begin to look toward professional marketers to assist with fundraising efforts. The problem is, regardless of how good a placement agent is, overcoming a stale campaign with negative first impressions is a monumental undertaking. Now these key influencers, the ones initially considered the most viable firm references, may have an opinion of the fund opportunity that is less than positive, making them a less than ideal reference for the opportunity. Very rarely will an investor reopen the door to a manager they have already said “no” to. If a second meeting is requested based on a strategy revision or marketing shift, the possibility of securing an allocation is negligible at best. Once the investor perceives a manager as weak, that perception will likely carry over to their ability to manage capital. This is unsettling because many of these managers have significant strategy management expertise, they just lack the marketing skills. Now the manager and new marketer must attempt to overcome the first impressions created by the initial “go-to-market” strategy, and restart the campaign (with little to no AUM). The months of pernicious efforts have now made the campaign goals far less feasible than when the idea was originally conceived.
Knowing What You Don’t Know
A manager with the pedigree and track record to launch his or her own strategy should have enough intuition to know what he or she doesn’t know. Yes, a manager’s relationship network is a terrific starting point to seed a fund, but just because a manager has a relationship with a viable allocator doesn’t mean an investment is imminent. There have been and will continue to be highly pedigreed managers, with stellar reputations, capable of achieving AUM goals with average materials and presentation skills. However, these scenarios are extremely rare. Don’t burn through your best relationships because you want to save a few bucks on hiring a dedicated internal marketer, or engaging an external team. While it may seem to make financial sense today, it can become the most expensive mistake a firm can make over the long haul. Do it right the first time. Find an internal marketer with relationships and expertise that can help, or hire a placement agent with the same vision, values, and priorities as you. Let the professional show your network who you are, what you believe, and how this will set you apart.
Putting Uncomfortable Pressure on a Relationship
Finally, respect and protect your long-standing relationships. It is amazing how quickly a manager’s biggest fans, the friends who encouraged them to strike out on their own, will jump off the bandwagon after being blindsided with a below average pitch, unprofessional marketing materials or a poorly-conceived fundraising strategy. It is often the most painful lesson learned (or, even worse, not learned) for a manager trying to launch a first-time fund. Qualified investors see countless pitch decks and screen a multitude of one-on-one presentations each month. Over the years, these investors develop a keen sense of quality. When approached by a manager that does not meet that standard, passing on the opportunity becomes second nature for that investor. However, when that unpolished manager is a friend or former manager, the situation can be excruciatingly painful for both sides of the table.
The idea of hiring a savvy internal marketer, or engaging a quality third-party placement agent to help think through and execute “all endeavors fundraising-related” is a strategy that showcases the experience and confidence of the manager. Identifying competent and confident managers who want to remain focused on strategy execution sits well with first-time fund investors. A firm that has chosen to make fundraising a part-time exercise conducted by folks with little fundraising expertise can send investors and advocates a message of corporate naivety or significant inexperience.
We believe that the decision to leverage a marketer or placement agent’s team, experience, and rapport with investors is one of the most valuable investments a first-time fund manager can make to achieve his or her long-term goals. Marketers will always boast of a manager’s intellect and ability in a much more confident, yet humble approach than the manager will be able to do when speaking of themselves.
Strategies attempting to lever existing relationships to build a referral network rarely work when executed without proper preparation and can result in irreparably damaged relationships and poor results.