Why Portfolio Managers Make Lousy Fundraisers
Pretty much every successful investor I know has one trait in common – they are all logical, rational thinkers. Which of course, makes total sense – detaching oneself from an investment decision requires a certain level of dispassion.
However, a person's thought process when it comes to making a meaningful purchase decision – including allocating money – involves emotion…irrespective of how analytical or surgical one is their decision-making. Think about it - if decisions were based solely on logic, then no one would ever join a country club or buy a fancy piece of jewelry. The economic justification could never support it.
Outside of having a great product (in this case, fund performance), most people think that raising money comes down to “salesmanship” - and often (incorrectly) associate it with the proverbial greasy used car salesman. But as with the fund manager, there are certain character traits that most good salespeople possess. Being good at selling requires patience and perseverance to fight through rejection, and the empathy to understand a client's issues. And of course, the best ones have a tremendous ability to read a room and then respond...not at all a logic-based skill.
The approach many PMs take in raising money is often flawed because it is based on flawed logic. You can make a very logical case as to why your strategy or fund or performance or pedigree is of higher quality than your peers - but without that interpersonal connection, there is no "relationship."
Below are some examples of common statements we hear from managers that I would put into the "flawed logic" bucket:
“All they have to do is hear our story…”
You probably won’t be surprised to learn that it’s the managers with the least distinguishable stories that seem most inclined to say this. These are also the people that are most likely to confuse an investor’s wallet size with their potential interest. Although managers think the goal is to just get in the room with “the billionaire” or large investment manager, it’s really about getting into the right rooms.
Sophisticated investors know what they want. Two of the biggest mistakes that managers make involve wasting time by trying to sell to investors where a fit doesn’t exist; and ‘disqualifying’ themselves with an investor where a fit does exist by not preparing properly.
“If they don’t care enough to do the work, they aren’t right for us anyway…”
Now of course, this is absolutely true…once they have actually decided that they should care about you. But – it doesn’t typically happen immediately. Love at first sight just isn’t as much of a thing for institutional investors as one might hope. So, it’s unreasonable to think an investor would drop everything and start digging into a pile of materials you have dumped on them via email or go rooting around the internet after an initial introduction or single interaction.
Remember – you are fighting as much for time as you are for “fit.” Like any discovery process with any high-ticket product, interest develops over a period of time. Overwhelming a prospect with information upfront will more likely slow the process down rather than speed it up.
“We only need a few investors, so we don’t need a (formal) process…”
This is one of the biggest misnomers of all. While it’s definitely true that a fund can get launched with only a few large checks, get those few large checks typically takes a whole lot of conversations with a whole lot of people. And then there needs to be a mechanism to measure interest – because in a “self-discovery” world, few people pick-up the phone anymore. Not suggesting you spam the entire planet – but numbers and process do matter.
Like it or not, sales is a skill – just like making money. It’s a full-time job that requires certain attributes and experiences that not everyone has the time or inclination to learn. What applies in what situation, doesn’t necessarily apply in another – and it’s actually presumptuous to think otherwise. As Kyle Dunn likes to say, “if a salesperson isn’t considered ‘qualified’ to run a trading book, why would a PM think he is qualified to run sales?
By JD David