Emerging Managers: This is how you should go about raising your maiden fund.

Emerging Managers: This is how you should go about raising your maiden fund.

Softbank achieved fund-close of its latest Vision Fund of 100 billion dollars in record 8 months. This fund is dedicated towards late stage funding of tech companies. To keep things in right perspective, the amount raised by Softbank is more than the total amount invested by all of American VCs in 2017. This success comes on the back of past record of returns generated by earlier Softbank’s funds, which is in the range of 25-30% IRR.

While likes of Softbank are able to achieve fund closes of eye popping amounts with amazing alacrity, emerging managers find themselves struggling to close even their maiden funds.

We at Magistral, have been working with some of the global funds in assisting them with the fund raising efforts; and here is what we think can help emerging managers close their funds quickly:

  1. Specialized Content: If you claim to be an expert in real estate related to cannabis, and your fund aims to invest in this and generate superior returns, how much content regarding this area do you carry in your opening meetings? Is there a credible content available with Investor relations, business development and fund-raising teams? What are the legal-social aspects of investing in this? Compelling content establishes your authority right away and places you favorably with investors. Get the content and strategy regarding your fund right.
  2. Exhaustive Reach-out: Achievement of fund-close with target amount is a function of number of LP meetings a fund is able to achieve. At the same time, number of meetings is a function of LP reach-out efforts. LPs can be reached through calling, emails, references and social media. An exhaustive reach-out program ensures there is no door left to knock.
  3. Past Performance: Past performance in individual capacity of partners goes a long way in convincing investors to put their money in a GP. Pitch deck should clearly talk about realized paid up returns delivered by partners in the past. It establishes credibility of the GP.
  4. Capability to park funds: LPs not only see the capability of GP to provide handsome returns, but also the experience to handle and deploy large amount of funds. A GP capable of parking bigger checks means less hassle for LPs. In this scenario, smaller niche funds tend to miss out
  5. Events: There are hundreds of LP and GP events that take place across the globe throughout the year. Finding out the relevant event for your fund, and participating in the same has the potential of opening flood gates of investors for your fund. A slot for keynote speaker ensures some more mileage
  6. Social Media and SEO: Social Media and SEO still remains a black box for majority of GPs. These channels may not directly bring in funds, but are crucial for setting up opening meetings, getting references, supporting information and distributing content. A credible online presence helps LPs in its due diligence of GPs
  7. Over-dependence of Private Placement players: In our experience, we came across GPs who before giving out any details about their investing philosophy started talking about the brokerage; they are willing to give out for introductions. This is short-sighted. A Placement guy who will be attracted to such schemes would be short-sighted and will not benefit both the LP and GP. Even if the broker is well connected, it’s not possible for him to work with all type of GPs. It’s better to take responsibility of reaching out to LPs organically rather than depending on brokers and enticing them with ‘cuts’, which of-course would be paid from the fund that should have ideally contributed to returns to LPs. A situation where everyone is a loser.

I hope all the experience shared by us here is helpful and helps you close your maiden fund as soon as possible.

I represent Magistral Consulting, that has helped Emerging Managers in the areas of Private Equity, venture Capital, Real Estate and Infrastructure and Hedge Funds  raising their maiden funds. We have assisted GPs in all the above mentioned areas. For more information, please drop a query at prabhash.choudhary@magistralconsulting.com

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