How to Lose the “Wait” and Accelerate Your Fundraise
In the last edition of 60 Seconds, I covered the increasing velocity in the fundraising markets and the implications on how GPs should manage their process. In short, it is becoming increasingly common to see LPs rush to an onsite in order to retain option value for an allocation, but then slow down and drag the process on their own timeline. I received several inquiries from you about how to manage this dynamic and retain control of your fundraise. So, here are five key strategies to manage your interactions with LPs in today’s market and close on capital more quickly.
- Communicate deadlines early on: Too often GPs walk into a fundraise without a defined timeline of when they would like to have their first and subsequent close(s). To be clear, you may know when you would like to wrap up the fundraise and may even have an idea of the general timeframe for each close. However, to control the timing of your fundraise, you have to go a step further. Talk to a few key existing LPs to get a sense of their timing and then set appropriate and precise deadlines. Communicate these constantly to LPs. Failure to set expectations upfront will give LPs room to maneuver and delay your fundraise – not out of bad intentions but out of poor communication.
- Thoroughly prepare your data library: Having the foresight to prepare for requests that come in later will save you weeks of delay when they eventually do come in. Beyond the standard DDQ, have an operational DDQ, and make sure information on old funds and portfolio companies is easy to retrieve. As in most processes in this industry, the investor will take cues on timeliness from you. The pace of your replies will directly correlate to the pace of their approval process.
- Manage your forward pipeline: GPs often become so focused on sprinting towards a first close that they lose sight of continuing to build the LP pipeline for subsequent closes. The good news is that this should be second nature to GPs – after all managing your LP forward pipeline is similar to managing your investment pipeline. You always want to have a good ratio of LPs at the introductory stage, mid-level stage and final stage to seamlessly move from one close to another.
- Know when to ask for the order: The culmination of months of engagement with an LP, of course, is when you finally ask them for their order. This can be a delicate task as the timing needs to be just right – ask too early and the LP might decide that they are unable to make the timing and pass. Wait too long after the onsite and you face the risk that the LP has completed their allocation for the year or has shifted their focus to other compelling opportunities. In order to successfully navigate these waters, it is important to build scarcity around your fund and make the ask from a position of strength. Corral a group of investors towards a close date to keep competitive pressure in your favor.
- Manage third parties: Finally, remember that the battle isn’t over with an IC approval from the LP. The documentation process can be time consuming and frustrating, and GPs who fail to prepare themselves and their lawyers for this process will find themselves flat-footed at a point where time is of the essence. Make sure your LPA and subscription documents are prepared well in advance of when they are needed. Negotiations around terms can be a significant hurdle, so the last thing you want to do is lose momentum by having to wait for your legal team to finalize documents.
Have a great weekend and Happy Halloween coming up!
Sixpoint Partners, LLC, is a registered broker/dealer, member FINRA (http://www.finra.org) and SIPC (http://www.sipc.org). Sixpoint Partners Asia Limited is licensed by the Securities and Futures Commission (http://www.sfc.hk).