CAPITAL RAISING 2.0
“If I had asked people what they wanted, they would have said, faster horses”
- Henry Ford
The rule change that redefined professional football
According to Wikipedia, St. Louis University coach, Eddie Cochems is credited for calling the first legal forward passing play in 1906 – just months after a rule change allowing it in American football. His team went on to an 11-0 record that season and outscored its opponents 407 to 11.
From that day forward, the sport was changed forever.
Now, every team uses a mix of the run play and the pass play. But that adjustment didn’t occur overnight – it evolved over time. I am absolutely certain that there were plenty of coaches that said, “we have had lots of success with the run, we are just going to stick with what works”. Hard to imagine that they lasted too long.
The evolution of capital raising
The alternatives industry is at a similar crossroads with respect to capital raising. Despite a variety of new and modern distribution channels, most managers simply stick to a single approach - the one that has worked for them in the past.
As most in the industry know, the prevailing approach to capital raising is typically referred to as just plain “marketing” (or “placement” or “capital introduction”…) - although it would be more appropriate to just call it “networking,” since it involves little or no actual marketing.
It basically revolves around “knowing the guy that knows the guy”. No arguing that if you can plug into a network of existing relationships, you will get meetings. But again, that is just one form of distribution.
Then there are technology platforms – dozens of which have sprouted over the past year or so. GP/LP communities, online exchanges and due diligence platforms all have come to life in response to the JOBS Act.
The technology provides scalability and transparency that is often impossible to replicate with people alone. In the minds of these pioneers, forget the “old way” – it’s “everybody into the pool!”
And finally, there is “real” marketing – you know the kind of marketing that is done by every other industry. Modern tools and language to deliver consistency of message, sophisticated communication strategies around video, advertising and social networking and true analytics.
And, as you would suspect, there are plenty in the space that swear this is all you need.
Getting all of your tentacles to work at the same time – a multi-channel approach to distribution
We agree that the placement industry will remain important – in our minds, the role of the marketer or placement agent may get disintermediated but it will never be de-valued. After all, this is a people business – and few, if any, institutional investors would ever consider making an allocation without first connecting with the people on the other side. Placement agents facilitate that process.
Having said that, we are also firm believers that technology is here to stay. No question, it will make both the manager’s life and the investor’s job easier. Information efficiency at its finest.
But even the best people and most complex technology mean little if you cannot get your audience to pay attention in the first place – particularly given the tremendous amount of competition. Sophisticated marketing creates more robust engagement and helps disseminate a manager’s value proposition in a way that more traditional marketing just cannot. So you need that, too.
The capital raising process is on the cusp of huge change. And just like Eddie Cochems embraced a new strategy in football, while still incorporating the “old” strategies, today’s investment managers need to find a way to embrace new tools, while leveraging the older ones.
People, technology or modern marketing? It shouldn’t have to be an either / or question. The answer should be D – all of the above.
By JD David