The Three-Year Marketing Cycle
Despite the long lifecycle of a typical private equity fund, the private equity marketing cycle is very fast-paced and tends to come in waves of three to five years. Although your top priority may rightly be executing deals or managing your firm, a savvy private equity professional (you know who you are) recognizes the importance of staying current on trends in the fundraising market as well. LPs often have shifting preferences and the private equity landscape can look very different from one fundraise to the other. Changes in the marketing cycle usually fall into two key buckets – the way you present your firm and the ways in which you target LPs across different stages of the market cycle.
Across the multitude of fundraises that I have managed, a constant struggle that GPs face is getting comfortable with reinventing the way they present themselves to LPs. It is often difficult for a GP to rebrand themselves and reposition their story from one fundraise to the other. This is especially true if the GP has come off of a successful fundraise – GPs are averse to changing a formula that has worked in the past and often don’t see the value in spending time and brainpower to reposition their firm. In that regard, success unfortunately can breed inertia and lead to the diminution of your brand over time. As you think about positioning your firm for success, you want to ensure that you highlight that your firm is state-of-the-art and institutional in keeping up with market trends, shifting LP preferences, etc.
The second area you should remain cognizant of as you prepare for your next fundraise is the stage of the market cycle and its implications on how you target LPs. We like to think of the market in terms of a “fast market” and a “slow market”. A crowded, “fast market” is characterized by high deal volume and quick deployment, which results in GPs coming back to market on an expedited timeline. Due to these dynamics, LPs in turn are willing to underwrite future funds based on a less mature portfolio with a much lower DPI. In these market conditions, your Gap Analysis and delivering sound rationale on pacing and valuations will be the most important factors while engaging LPs. You will be best served by focusing on a smaller, more targeted list and moving with an aggressive timeline. Mindshare is the name of the game here, as LPs are often inundated with GP engagements.
Firms that are always in “marketing mode” and being thoughtful about the marketing cycle will find that they have an advantage over firms that fail to do this in between fundraises. Keep in mind that as LPs are forced to move more quickly, they will naturally gravitate towards GPs that they are more familiar with – if only because they have had the extra time to underwrite them. This is a key factor that many GPs overlook, and as we know every inch can make a difference when it comes to fundraising.
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