Let’s Talk About References
One of the most commonly overlooked aspects of the fundraising process is putting together your reference list and strategically deploying it for different audiences and situations. With all of the other things to manage during a fundraise, references often become an afterthought and are not used to their maximum potential. To be clear, reference lists are a standard part of any fundraising process. Every LP that goes into deep diligence on your fund will ask you for references. In this post I will discuss how you can use your reference list more strategically and tailor it to assist you in different circumstances.
It is best to start preparing your reference list early on in the fundraise – months before any LP actually asks for it. Take care to vet different candidates and think about the key points and themes that you want to convey, as well as who is best-equipped to articulate that with examples. Providing a range of references allows LPs to review you holistically and weigh different perspectives on your qualities as an investor. Preparing these in advance of a fundraise can help mold your firm’s “story” as well – Sixpoint conducts extensive references during our onboarding process which helps us pick out key recurring themes, both positive and negative. This helps us emphasize points of differentiation that even the GP may have missed, or alternatively identify issues before they become all-consuming and develop contingency plans around them.
It is important to be thoughtful while managing expectations of people who feature on your reference list. This is especially true when you are providing existing LP relationships as references. Providing existing LPs as references is always a sensitive topic and should be considered in a case-by-case basis. Touch base with the LP prior to putting them on the list and try to tease out whether they may or may not be a good reference. Communicate with them early and give them context so that they understand the purpose of being on the list and what you hope to highlight. Obviously, you cannot tell the LP what to say, but they need to know to accentuate the positive attributes that are most relevant to your stated strategy or message. Tread carefully if an LP is still in the process of evaluating you for the future fund. If this is the case or if you determine through pre-screening that you may have a negative reference, you need to be especially thoughtful about how to contextualize this type of reference to the LPs who may be calling. There are two sides to every story and make sure that you are telling yours. We have several ideas and strategies on how to do this that I would be glad to discuss for anyone that wants to reach out and may be facing this dilemma.
Broadly speaking, references can be used for either defensive or offensive strategies. Defensive reference strategies come into play in situations such as conflicts over attribution on past transactions. If someone else in the market is claiming the same deals as you, your references can help set the record straight so it doesn’t affect your fundraise. Create documentation that outlines your role in each investment and provide the corresponding reference for each part of that transaction to corroborate your story.
Offensive strategies can be helpful in scenarios such as when you don’t have attribution, which can come up if you are spinning out or launching a new adjacent strategy with a new team. An extensive reference list will ameliorate this issue and highlight your role in prior transactions for prospective LPs. Lenders, bankers, legal counsel and co-investors are important to have here, but it is really the portfolio company executives who will add the most value by articulating the relevant persons’ level of involvement in the transaction and comparing it to other members of the prior team.
As always, please feel free to reach out with your questions, comments and perspectives on this or any topic. Have a great weekend!
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).