The Method In The Madness
Why is it so important to apply process to raising capital?
Traditionally, raising capital meant speaking to everyone you already knew and relying on meeting new people along the way and fostering new relationships from scratch. This can work for some but it’s an inherently inefficient way of working.
In liquid strategies, everyone’s goal is ‘net inflows’ and in closed ended private equity, the aim is to meet the target raise by the target close date – both of these objectives can be incredibly stressful, even for the best names in the business.
The problem is that most often professional institutional investors will want to track a liquid fund for a period of time, sometimes a year or more, before they decide whether they will make an allocation. Assuming moderate performance, the key is securing more aggregate allocations than redemptions from existing investors – we all know that redemptions can be as a result of portfolio rebalancing or problems with other investments rather than just the last quarter’s returns.
For Managers of closed-ended PE structures, ‘herding cats’ is an often used analogy. For all but those with extensive track records based on exits and distributed returns (bearing in mind PE Funds are often 10years + in duration), getting investors in place with commitments secured and subscription documentation complete, can be a logistical nightmare. Third and fourth time funds can often get commitments from existing or past investors but the timing is not always right.
In both of these scenarios, there are some basic tenets that if adhered to can greatly ease the problem.
- To raise capital you have to be in current conversations all of the time
- Raising capital is like running an airline, you need to overbook the plane to ensure that it is 100% full because we all know that not all the passengers will show up at the gate
- Therefore you need to speak to many more potential investors than you think you may need, so you can’t just rely on speaking to everyone you already know and hoping you keep running in to a few more along the way
- The outbound marketing of your investment proposition therefore, is likely to be on a much larger scale than first envisaged
- You will need to run multiple concurrent conversations, all at different stages of the investment evaluation and commitment process, all with potentially different needs
- You will need to be continually filling ‘the hopper’ in order to get to the number of investors that you require to grow your asset base or reach a target raise by a certain point in time
None of the above happens effectively without a method or a process – this is just a simple fact of life….
Post -It notes, diary entries, Outlook reminders, even spreadsheets, are simply not up to the task.
What is required is a strategy, a target list, and some tools that can get the job done that allow the marketer to stay on top of the game, optimizing the chances of an allocation with each and every investor conversation, and ensuring that nothing has fallen between the cracks.
There are some very effective and relatively simple tools that once mastered, can greatly enhance this process, allowing the marketer to focus on the investor conversation rather the process surrounding it.
- This starts with a clean and well-designed database of investor contacts that can be continually refreshed and added to
- An Electronic Direct Mail system can be set up to ensure that the pipeline is always full
- This all works in conjunction with a Contact Management System (CRM) that can be configured to mirror your exact process of investor commitment
- Tools that allow for ‘Sonar Profiling’™ allow you to gauge an investors’ likely interest in your proposition
- Finally, an intuitive secure data room for the distribution of key investment documentation
Relationships are important, we’re the first to acknowledge that, but there is some science involved in getting the right relationships in the first place.