Why Are Some LPs Holding Two Onsites Rather Than One?
In 2019, much of the slowdown in private equity fundraising was driven by an oversupply of funds coming to market. New managers and increased fund sizes taxed available capital in the system for sponsors on the fundraising trail. Although we expect capital flows to increase in 2020, you should expect longer fundraising periods than you might have experienced over the past several years. You should also be prepared to have your fund re-underwritten by LPs, even after your on-site, which in many cases is dragging out the timeline and introducing new risks to the overall approval process.
As LPs drag out their decision-making process, your fund profile or “story” may become stale. Recent catalysts like new exits or improved marks may become old news over time. To avoid this happening, remain proactive and over-communicate with LPs on where things stand within your portfolio. This can be in terms of actual vs. budget performance, modifications to your pipeline, or perhaps changes made to your own underwriting process to keep up with broader fluctuations in the market. For example, are you factoring in multiple contraction as you underwrite new businesses? Have you made other changes to your investment criteria? It’s critical that you constantly refresh the “story” as LPs take more time in making their decision because, in some cases, the LP may need to do a second on-site and you want to remain top of mind with that LP.
I’m always amazed at how GPs undervalue what is truly “newsworthy.” The battle for mindshare is so intense today that we encourage our GPs to get really granular in their updates and position them properly to LPs so there is a constant drumbeat of news.
In today’s crowded market, LPs have many more investable options than they do investable dollars. It’s only logical that LPs take their time moving forward to see if you deliver on the promised execution plan communicated during your last call or visit. Don’t get frustrated if you experience a second onsite and be prepared to arm the team presenting and the LP with all of your new activity. Many of our GPs have found success in the second on-site by changing up the presenting team, order or format of the on-site entirely as another way of staying fresh. In many ways, you need to both affirm what the LP likes about you the first time around while also showing that there is real momentum in the fundraise and portfolio going forward.