(Don’t) Curb Your (Team’s) Enthusiasm
On Tuesday of this week I lectured at the Wharton Graduate School of Business on “The Fundamentals of Private Equity Fundraising.” It was a highlight for me on many levels not the least of which because I attended the University of Pennsylvania as both an undergraduate and law school student more than 20 years ago. The class was comprised of a diverse set of MBA students moving on to institutions like Aurora, BC Partners, Deloitte, Wells Fargo and other middle market private equity, consulting and investment banking firms. The lecture was a vibrant and active discussion that focused on the challenges and trends of the current private equity market, solutions and opportunities in the years ahead and a comprehensive discussion of fundraising tactics and strategies.
We discussed the important role culture plays in building and growing a private equity firm. This comes into play prominently during the fundraising process as LPs want to see a balance of skills, perspectives, capabilities and decision-making authority across your firm. They try to avoid GPs with a singular head or too dominant a personality if there is no check on his/her investment authority. A vibrant and robust investment committee that’s complimented by a balanced leadership architecture is more likely to avoid mistakes in its investment process like drifting from its core strategy or average size of investment.
Culture can also drive performance by attracting and retaining talent. An immediate red flag for LPs is when a firm lacks the necessary resources to execute its strategy because the senior leadership is unable to recruit or retain the appropriate levels of talent. I was taken by how many of the students expressed an honest frustration before, during and after class about not being sufficiently engaged by the firms they worked for. This was particularly striking coming from the folks who worked in private equity. One student raised his hand and asked “how can I get more involved in my firm’s fundraising process?” I gave him the most straightforward piece of advice I could: “just ask.” In many firms, the principal conduit to the LP community also tends to be the leader of the firm. The path to the top followed by many leaders is an interesting one because it isn’t always tied to the person with the strongest investment acumen or performance. Instead, firm leadership tends to be in the hands of the person who controls the most crucial asset your firm manages: your LP relationships. Too often the senior figures of private equity try to monopolize the key relationships as a way to hold on to their power internally. In reality, the most successful firms take a team approach to fundraising and LP relationship management. This is because the market is too big for any one or two people to manage alone. The broader base from which you pull your resources, the more LPs you are likely to touch and the more successful and balanced you will be in doing so.
Back to the student’s question: how would you respond if someone asked to be more involved with the firm’s LP relationship management process? You could create a role for your colleagues by training them (something we do with our clients) in how to deliver the firm’s pitch. You could also encourage members of your team to go to select conferences and participate in meet-and-greets. Finally, you can provide a firm-wide onsite prep course that teaches every member of your firm how to navigate the LP onsite process. Prospective investors will view you favorably because your team is both knowledgeable and prepared.
Thank you to the students of Wharton for a great discussion. I hope that I’ll be invited back. I also hope that all of you reading today’s issue of 60Seconds will be back next week when I discuss a new trend in the market: the self-reflective strategic review. Have a great weekend!