Welcome to 60 Seconds with Sixpoint
Welcome to the first installment of 60 Seconds with Sixpoint: a series of short missives to help build and maintain best practices in your fundraising efforts. Feel free to email me any topics that may be on your mind over time and I will be happy to address them in a future note. This week, I’d like to explore what our firm believes to be the dominant factor in converting a fund commitment: LP relationships.
Our firm has counseled GPs on four key aspects to a successful fundraising: track record, team, strategy/competitive advantage and sourcing. But what about the LP relationship itself? The value of the relationship doesn’t come up in the same analysis as the other factors as often as it should. This is because almost every GP has an achilles heel: a weakness in their investment story, a partner that left, a deal that went poorly, an outsized or off-strategy investment or simply a period of slow deal activity. When you build deep and multi-layered relationships with LPs you can later draw on the goodwill that is built away from these issues or fundraising hurdles and pave the way to a commitment and fruitful partnership. If a GP lacks true depth of relationship they are putting undue pressure on their firm’s shortcomings and in most cases exacerbating LP concerns instead of mitigating them.
A new paradigm has emerged over the past few years with respect to the relationship between LPs and GPs and that simply “handling” investors through quarterly calls, brief update meetings and investor letters is no longer sufficient communication for existing or prospective LPs. GPs need to have a programmatic and measurable approach to their interactions with investors. There’s no “in-the-market” or “out-of-the-market” today — rather, there is only one continuous dialogue with the LP market.
Acknowledge that LP capital is not a commodity. It’s a resource. Certain names can bring tremendous value and halo to your firm and how you interact with them between fundraises will impact whether they commit to your first close.
Next on 60 Seconds with Sixpoint: As a GP, how do you address these new demands on your time, attention and resources? One way, is to ensure that you implement a programmatic and measurable outsourced investor relations effort between fundraises. Next time, we will explore best practices for implementing such a program and we’ll provide detailed examples and insights for doing so.
Sixpoint Partners, LLC, is a registered broker/dealer, member FINRA (http://www.finra.org) and SIPC (http://www.sipc.org).