Fundraising for Private Equity Cap Intro and IR Career Paths

[Music] Hello and welcome. I'm Patrick Curtis, your host and chief monkey, and this is the Wall Street Oasis podcast. Join me as I talk to some of the community's most successful and inspirational members to gain valuable insight into different career paths and life in general. Let's get to it. Member Earth Walker 7 joins us again to give the listeners a deep dive into fundraising best practices for private equity funds, LP psychology, as well as the various roles and career paths available to investor relations professionals. Enjoy. Earth Walker 7, thank you so much for joining the Wall Street Oasis podcast again. My pleasure. Great, and yeah, it'd be great if you could just give the listeners some context again about your background. Sure. So I've spent more than 10 years in private equity, and in addition to doing deals, I was asked to help with fundraising. And so now I've done fundraising across four different funds. Also, I've spent time doing fundraising for one of the hedge fund products, and then also spent about a year and a half doing cap intro at one of the bulge bracket banks. So a little bit of experience across more or less all fund types, so I can speak to in-house IR, cap intro, trail placement, and hedge fund capital raising. Great. And I guess, you know, this is a little bit of a different career path than what the traditional member on Wall Street Oasis is interested in, but I think it is an interesting topic we could kind of dive into. I'd love just to hear a little bit more about specifically the cap intro role at the bulge bracket bank, but also I think you had some top suggestions in terms of how to go about capital raising for private equity funds successfully and how to manage different LPs, so I'd love to hear a little bit about that as well. Yeah, absolutely. I think we should spend most of the time on sort of the best practices for capital raising, but just real quick on the career side, you know, it can be a decent career for someone who really likes, and particularly like selling alternatives. It's a different kind of a deliverable compared to being on the deal side. I think if you're on the deal side and get to analyze a lot of different companies and a lot of different deals, and you tend to really be—I hate to say there's a deal junkie—like you want to see the deals closed and you want to unlock. Our community's cap intro is very different, and so fundraising is very different. It's really more about developing long-term relationships with the LPs and getting a really good sense for LP psychology and then taking more of a sales role doing it just inside of alternative funds. It also really matters fun to fund how you get treated. So in some cases, you can be a full partner and get carried interest. Dave Rubinstein, for instance, spends basically all of his time doing capital raising and flying around the world and deepening the Carlyle relationships with big LPs. On the other hand, for a lot of people coming up in the ranks, they may not be treated quite as generously. Yeah, yeah, really is more varied. And so the GC, the junior roles for that, can you talk a little bit about like where similar would actually start there? It wouldn't be something they get right out of school, would they? Is the typical path for this, or maybe there is no typical path, but is it right out of undergrad? Is it something where they'd be learning under, you know, they join a large fund and maybe be learning under one of the lead people there? You see that sometimes, but sometimes it's really more of a lateral movement. So like what happened to me. So you do see sometimes people get hired in to help carry the water or capital-raising inside of the fund, but really that only happens at the very large funds. And then those junior people are really more client services. And that's because a lot of the funds don't have enough seats for even one full-time IR person, much less a full-time person to have a plus a junior person to support. And so that's a little bit more rare unless you're talking about really the larger platforms. And cap intro, it's different. So cap intro really the same titles and hiring hierarchy that you get inside of investment banking. Cap intro, just for those who don't know, is capital raising for hedge fund clients of the investment bank. It sits inside of prime brokerage, and that's a role which is actually very different from inside of PE because you really are the tip of the spear. So if you're a hedge fund client of the investment bank, you really only care about a handful of things. You care about stock tomorrow, you care about being able to get leverage, and you care about cap intro. So cap intro is one of the prime selling points for prime brokerage inside of an investment bank for getting hedge fund clients on board and also to keep them continuously happy. The hedge funds are always raising, so the cap intro guy is not everyone's speed dial, and all the hedge funds want their help. That's really interesting. And so the cap intro team at a bank tends to be much larger. I assume they actually probably do bring in undergrads, and that's kind of where somebody that would maybe later transition into a fund as the internal IR person might start. Yeah, that's right. So the team is, you tend to be larger, and it consists of a very different kind of role from inside of private equity or even hedge fund because when you're in cap intro, you really are just doing that. You're making introductions, you're coming up to a certain extent with the capital raising strategy for one of your hedge fund clients, you're putting on big events to bring the hedge funds and the LPs together, right? You are trying to facilitate introductions. You're doing that continuously throughout the year. So for instance, with the bulge bracket that I was a part of, we'd have a couple of big events during the year where we bring all of our funds or a lot of our best paying funds and as many LPs as we could get and bring them into an event and try to pair them up in, you know, in the roundtables where you have multiple LPs listening to one GP pitch. But the capital raising process is year-round. The difference between that and being inside of a fund is you're not a subject matter expert on any of the funds. You're basically an inch deep and a mile wide. You know, I have personally more than 70 GP clients from the bank, and so the job was really about trying to keep as many of those 70 happy and trying to keep them continuously being fed with new leads from the LP side. Meanwhile, if you're going inside of a fund, you're going to know that one fund's product may only have one product. They may have, you know, a handful of products if they're a large enough shop, you know, maybe a venture or growth and a buyout product and maybe a hedge fund product. And you can only know so much if you're on the cap intro side, but you get to meet absolutely everybody in the industry on both the GP side and the LP side, whereas if you're inside of the fund, you know only your own product and you're really more about pushing out to the LPs. And it's also different from compensation and pressure and responsibility. So on the cap intro side, you have a lot of resources because you have a lot of the LPs really want to talk to you because even if one product isn't suitable for them, you have, you know, dozens more that you can show them. So the LPs tend to be pretty receptive, and a lot of the big hedge funds also take you quite seriously. On the other hand, you never get to win. You never feel that you're crossing the finish line, always just making an introduction and stepping away and letting the fund manager actually try to close, and you're on to the next fund and you're on to the next fund and you're cycling through. So I actually found it to be quite a grind and working, you know, pretty much between 12 to 16 hour days, and it was really more 16 hour days five days a week plus at least half a day and sometimes even more on a weekend, and it's a lot of j

life in general let's get to it member earth Walker 7 joins us again to give the listeners a deep dive into fundraising best practices for private equity funds LP psychology as well as the various roles in career paths

available to investor relations professionals enjoy earth Walker 7 thank you so much for joining the wall street races podcast again my pleasure great and yeah it'd be great if you could just give the listeners some context again about your background

sure so I've spent more than 10 years in private equity and in addition to doing deals I was asked to help with fundraising and so now I've done fundraising across four different funds also I've spent time doing fundraising

or one of the hedge fund products and then also spend about a year and a half doing cap intro at one of the bulge bracket banks so a little bit of experience across more or less all food types so I can speak to in-house I are

kept in trail placement and hedge fund capital raising great and I guess you know this is a little bit of a different career path than what the traditional member on Wall Street races is interested in but I think it's it is an

interesting topic we could kind of dive into I'd love just to hear a little bit more about specifically the cap intro role at the bulge bracket bank but also I think you had some top suggestions in terms of how to go about capital raising

for private equity funds successfully and how to manage different LPS so I'd love to hear a little bit about that as well yeah absolutely I think we should spend most of the time on sort of the best practices for capital raising but

just real quick on the career side you know it can be a decent career for someone who really likes and particularly like selling alternatives it's a different kind of a deliverable compared to being on the deal side I think if you're on the deal

side and get to analyze a lot of different companies and a lot of different deals and you tend to really be I hate to say there's a deal junkie like you want to see the deals closed and you want to unlock our community's

cap intro is very different and so fundraising is very different it's really more about developing long-term relationships with the LPS and getting a really good sense for LP psychology and then taking more of a sales role doing it just inside of alternative funds it

also really matters fun to fund how you get treated so in some cases you can be a full partner and get carried interest dave rubin scene for instance spends basically all of his time doing capital raising and flying around the world and

deepening the carlyle relationships with big LPS on the other hand for a lot of people coming up in the ranks they may not be treated quite as as generous as generously yeah yeah really is more varied and so the GC the jr. rules for

that can you talk a little bit about like where similar would actually start there it wouldn't be something they get right out of school would they is the typical path for this or maybe there is no typical path but is it right out of

undergrad is it something where they'd be learning under you know they join a large fun and maybe be learning under one of the the lead people there you see that sometimes but sometimes it's really more of a lateral movement so like what

happened to me so you do see sometimes people get hired in to help carry the water or capital-raising inside of the fun but really that only happens at the very large funds and then those junior people are really more client services

and that's because a lot of the funds don't have enough seats for even one full-time IR person much less a full-time person to have about plus a junior person to support and so that's a little bit more rare unless you're

talking about really the larger platforms and cap intro it's different so cap intro really the same titles and hiring hierarchy that you get inside of investment-banking cap intro just for those who don't know is capital raising or hedge fund clients of the investment

bank it sits inside of prime brokerage and that's a role which is actually very different from inside of PE because you really are the tip of the spear so if you're a hedge fund client of the investment bank you really only care

about a handful of things you care about stock tomorrow you care about being able to get leverage and you care about cap intro so cap intro is one of the prime selling points for prime brokerage inside of an investment bank for getting

hedge fund clients on board and also to keep them continuously happy the hedge funds are always raising so the cap intro guy is not everyone's speed dial and all the hedge funds want their help that's really interesting and and so the

the cap intro team at a bank tends to be much larger I assume they actually probably do bring in undergrads and that's that's kind of where somebody that would maybe later transition into a fund as the internal IR person may it

might start yeah that's right so the team is you tend to be larger and it consists of a very different kind of role from inside of private equity or even hedge fund because when you're in cap intro you really are just doing that

you're making introductions you're coming up to a certain extent with the capital reason strategy for one of your hedge fund clients you're putting on big events to bring the hedge funds and the LPS together right you are trying to

facilitate introductions you're doing that continuously throughout the year so for instance with the bulge bracket that I was a part of we'd have a couple of big events during the year where we bring all of our funds or our a lot of

our best paying funds and as many L pieces we could get and bring them into an event and try to pair them up in you know in in the roundtables where you have multiple LPS listening to one GP

pitch but the capital raising process is year out of difference between that and being inside of a fund is you're not a subject matter expert on any of the funds you're basically an inch key and a mile wide

you know I have personally more than 70 GP clients from the bank and so the job was really about trying to keep as many of those 70 happy and trying to keep them continuously being fed with new leads from the LP side meanwhile if

you're going inside of a fund you're going to know that one funds product may only have one product they may have you know a handful of products if they're large enough shop you know maybe a venture of growth and a buyouts product

and maybe a hedge fund product and you can only know so so much if you're on the cap intro site but you get to meet absolutely everybody in the industry on both the GP side and the LP side whereas

if you're inside of the fund you know only your own product and you're really more about pushing out to the LPS and it's also different from from compensation and pressure and responsibility so on the cap intro side you're you have a lot of resources

because and you have a lot of the LPS really want to talk to you because even if one product isn't suitable for them you have you know dozens more that you can show them so the LPS tend to be

pretty receptive and a lot of the big hedge funds also take you quite seriously on the other hand you never get to win you never feel that you're crossing the finish line always just making an introduction and stepping away

and letting the fund manager actually try to close and you're on to the next fund and you're on to the next fund and you're cycling through so I actually found to be quite a grind and working you know pretty much between 12 to 16

hour days and it was really more 16 hour days five days a week plus at least half a day and sometimes even more on a weekend and it's a lot of just churning the same kind of thing connecting

connecting connecting right the different data points whereas I think inside of the private equity fund you really get to go deep so you get to know all of the portfolio companies you get to understand the dynamics of the deals

why do the certain deal get done and how did they get done you actually delve into the financials and mathematics people start asking you about how leverage was applied or you know what the companies turn performances inside of the portfolio and

so it's much more detailed but you had you had mentioned you had mentioned inside the PE fund specifically that there's just often either one seat or no seats or half a seat for this type of role so or is that is

that correct that's right so so it depends on the size of the fund for AUM and how seriously they take capital raising so if you're at a VC fund there is absolutely no I our seat it's generally the partners that are doing

that and they're spending some of their time on it in other funds they might be a co o type person that takes on the responsibilities of managing but also takes on the responsibilities of compliance and capillaries and then in

certain groups when they've gotten to be quite large like Carlyle TPG of KKR they actually have fully built out capital raising functions where I have multiple products they've got very large products which means they have to talk to a lot

of LPS and a lot of very big slow-moving LPS and there's always one product or more that's available so they actually have very sophisticated and well built out platforms another group we haven't talked about is the placement agent

group which is basically also evolved out of the investment banks and then has also an independent standalone shops which help private equity funds raise capital so just like cap intro which sits inside of prime brokerage for hedge funds you have groups that are out there

raising money for private equity funds and so you've got a number of pretty big independent groups like M vision or and then you've got the the groups that are inside of the investment banks as well got it and these these placement agents

that are their names for them is that typically placement agents as the as typically and they they're usually focused on private equity or they also do hedge funds that from time to time or they mostly do private equity yeah and

the reason is the the hedge funds the it's it's almost entirely private equity there there may be some exceptions here and there and and I actually have heard of that but placement for hedge funds really didn't work out economically and so a

lot of the shops that started trying to do that ended up shutting that function the reason is hedge funds are more liquid and so it's easier to get money in but a lot of that money leaves right and so it's harder to calculate the

economics for that interesting while the placement for private equity it's quite simple it's usually one to two percent on capital raised right gets paid out over a couple of years and so it's very clear it's also a very different sort of

a cell cycle so inside of cap intro at a bank cap intro doesn't doesn't sort of charge anything for the capital raising they do right it's a value-added service that the bank provides to its hedge funds clients to entice them to choose

that Bank as their prime broker and consequently it's very hard to kind of figure out what that cap intro person's company personal compensation is because what their value add is even it's because they're basically just making the hedge fund the prime brokerage more

sticky rice it's a steak service yeah okay exactly meanwhile the placement agents it's very clear who brought in the client how much that client is worth how much they paid the placement agent how much money that placement agent raised for that

particular client also similarly so it's also whereas the cap intro person is introducing lots and lots of GPS to lots and lots of LPS and being an inch deep and a mile wide in in the placing agents for private equity they actually have to

know their product incredibly deeply they're basically being an outsourced IR person for that private equity shop right the only difference is that placement agent has multiple funds going at the same time so they tend to have much larger teams they have multi

geographical teams and much wider coverage and are there anything there any specific are there any specific placement agents that are like the you know top that are considered the top and that do really well and that are the

economic stuff for that business I know they can make obviously if they if they're very successful and they're they're getting one or two percent of the capital they helped raise they could be fairly lucrative but are there are

there any kind of what you similar bulge bracket type placement agents or is it kind of more a fragmented market so it actually does have tearing so you do have some of the investment banks which have this practice built out okay

and so UBS for instance has a very solid practice for placement and Credit Suisse has a very well-established placement business kind of Merrill Lynch used to have a very good practice but that's spun off and was called mercury and

there's also other independent okay just curious okay that's fine yeah I mean and so then Sarai continue you were you were talking about specifically the your your the difference between the two but go ahead oh no it's just it makes a big

difference in terms of quality right I mean Credit Suisse and UBS they don't just take anybody on as a client right they're famous for telling everyone that they've never failed on a capital raise and so they vet the funds

that they take on very very thoroughly and they take on only a small number of mandates and then actually it starts to go it starts to break down into tears thereafter and you can get even to very small boutique II placement agents but

the quality tends to vary quite dramatically and this is one where there is potentially career track for someone who's interested coming out of undergrad or even out of MBA because those sort of shops do higher in the old investment

banking way and so basically and what skills was your associate and so on what skills matter I could guess but why don't you just tell me what skills are they're important for actually get first getting the job and actually progressing

and getting promoted so the most important skills are still being quantitative but also having a strong sales edge just like with I think a lot of IBD there's still financial modelling they're still having to compose the information for the fund and put

together the pitch deck and try to make that compelling and I'd say versus IBD is perhaps more skewed towards sales and a way from the quantitative side but both elements are still required and I think it can be attractive to someone who

really would be more interested in selling a product either inside of a placement group or eventually going to a fund and really being more the tip of the spear for sales as opposed to being a field person and and crunching great

great that's great so why don't we take it in a direction of you know that's some good career stuff why don't we take you the direction of actually giving some advice on actually the actual fundraising process since you've been in

cap you know cap raising on the prime brokerage side right and then you've been inside you said four different head four different funds yourself but they were all private equity funds correct correct except one of them also had a

hedge fund attached okay but yes primarily being on the private equity fund so be great just to hear yeah your your guidance there sure so there's a number of things so first it's really important to be able to understand LP

psychology and then to be able to spend your time appropriately because there's a there's a massive ocean of LPS out there and you can't spend time with all of them you really have to find the ones that are a good fit for your fund and so

it's important to understand how the LPS think broadly speaking most of the LPS want consistency and okay returns it's very rare where you see an LP put their hand up and say we're actually trying to get out sized shoot for the

moon returns and we're willing to take bets on newer younger funds so there's several kinds of buckets that I think of the LP universe you've got the pension engine and insurance which I put as one bucket where they're very large

slow-moving they need to write large checks which means that since they can only be a certain percentage of a fund it's usually 10% of that fund it means they're gravitating towards larger fonts right you have endowments and foundations which are smaller they're

also looking for some of those same qualities of consistency but the endowments and foundations tend to be managing smaller pools of capital so they can talk to smaller funds and then you have fund of funds which are you know all

very unique so it's hard to kind of bucket them because each one has their own sort of mandate so yeah and fund the funds are typically used by either very large LPS or very small LPS and basically so fund of funds basically

what they do is they invest as an LP into a fund but they get their money from some of the other LPS and where it's used is to kind of try to bridge the gap maybe it's a geographic gap

maybe it's a deep knowledge gap so funy funds will go to the big pensions or insurance companies to say you've got way too much money to manage let us help you break it down into smaller chunks we're an expert in Eastern Europe we're

an expert in Africa we're an expert in Asia or maybe we're an expert in health care and you don't know how to address that particular area of the world and figure out who the best gp's are but we

can and so we'll help you do that or they go to family offices and they say you're too small to have your own independent program many of us the money is a fund of funds and we'll help you

find the best in class PE funds and manage that for you and so they they charge a layer of fees usually one in ten one percent and 10 percent of management fee and Karie yep and that extra layer fees needs to be justified

when fund of funds universe has been shrinking yeah I was about to ask you whatever what is that coming under a lot more pressure that that space in the last you know yeah absolutely yeah that's been really challenging so fund

of funds have had to evolve a lot of them have moved more towards direct investing side so good examples of this I think our partners group which is a massive publicly traded platform for private equity it started off as a fund

of funds shop and now that there's so much pressure on fund of funds they've really moved more to doing direct and fund of funds as a way to get access and all kinds of different changes in fund of fund universe and then you have

family offices as sort of the last bucket of LPS that I would mention and family offices are all completely different if you've met one family office you've met one family office completely different from each other you have large family offices that have very

well-established programs and therein are investing across all the asset classes you have other family offices but all they do is alternatives you have other family offices who adds all of it on Adler's and want to invest directly and and and family offices they'd like

to build themselves as a different kind of more sticky Capitol but a lot of GPS actually find that because of the variance and the inconsistency a lot of family officers can be more trouble than they're worth that being said if you're

raising smaller fund or a venture fund you're gonna spend time with family offices only because the other LPS are too big to really have you on their radar you know that makes a lot of sense I think you know it's it's probably just

- there's too many sync receipts in family offices - but can't even group them into one book it's just they're all so different but like you said I think would be interesting to hear now is is a little bit more about your actual

experiences you've been across four different funds in this and the specific role kind of what your takeaways are what's your kind of best lessons or best practices that other capital-raising or internal IR teams you feel like should follow absolutely so best practices

number one before you take a job really vet the company or the fun that you're going to be joining because ultimately you're going to be going out and selling that product and there's dramatic differences between all the funds and so

you really need to think from the LP perspective is this going to be an attractive product other returns high enough have they been consistent as the team been together consistent no for a long period of time as that strategy

that they're currently deploying is that the same strategy that they've used or has there been strategy drift do they have a unique edge and which enables them to generate returns or do things differently than other funds and when

you when you're interviewing weight but when your interview is it's really hard to do right I mean I think when you're interviewing at least when I was interviewing at least in the junior level it's kind of hard when you're

trying to just get in the seat oftentimes right do you feel like I guess for maybe for IR specific positions maybe if you're have a great resume a great background and people are trying to bring you into the fun for

that reason maybe you can you can push back a little bit and dig but what's been your experience in terms of being able to actually execute on on that on that research when I've done good research and chosen the fund well which

is things that which I used to do early in my career mm-hmm that's when things went well because I made a confident decision that I wanted and joined that particular fund based on these attributes later when I was a little bit

more lazy or felt that I couldn't push back that's when things went poorly because you might end up getting the offer and then you're stuck raising for a product which is problematic and that's where I went wrong and so

interesting ly enough in my career I actually was able more felt more confident pushing back early than later why was that some pie was a son I'm sorry it seems counterintuitive why's my work were you more confident earlier in

your career for that specific it was just the situation you were in no I think that early on I did things in the right way which is to really push and dig and make sure that before you choose

a fund that you choose the best-in-class product right and I think later on you know for there was a you know wanted to join the fund which had more of a social impact and I ended up letting some of

that discipline slide and saying you know you've got the right mission but there's some other things that are kind of broken right and I joined anyway and then I actually turned out to be problem that so you need to really stick to the

guns whether you're Junior mid-level or even senior before you need to do really dig in and it's the same thing for the place matrons do you have to think is eventually going to have to raise this product I'd imagine one of the worst

things that a junior person can do is to get into a fund that's going to be very difficult to raise and then not have success is raising and have much harder time with it and I have to say it's a lot more fun to be at a fund

which is doing something unique which has a real edge and the LPS want to deploy money into rather than being at a mediocre fund which lp's don't want to invest and the LP psychology is actually very straightforward they want

consistency they don't want to get fired so they want to buy IBM they need consistency of returns you would rather have a fund which is returning 15% every single year then a fund that is you know sometimes doing 25% or more and

sometimes returning 10% that drives lp's crazy consistency of returns as important consistency of team that they've been there but that strategy has remained fairly consistent right and that they can keep counting on this particular vehicle to keep delivering

for them year after year and making them look good as deployers of capital they also are looking for the best in class so if you're sitting there as an LP you don't want to be in a ok fund within a given

type you know you want the number one healthcare fun you want the number one TMT fund you can get want your number one middle-market buyouts you want your number one Latin America fund and so if you're someone who's interviewing to go

join one of these funds you'd rather pick a fund that is best in class and that makes sense and there's and there's reputation that people hear about certain deals that it went really well but how good is that data like our

people actually able to get you know I did a little bit of this work with with the fund I worked at as well I had a little bit uh helping them in terms of the fundraising side but it was you know

minor and I know there was just you know there's there's massaging of the numbers here and there but it's it I guess the question is on when you're sitting on the other side it's very hard I feel like to know and did get get that really

good data so you feel confident I guess there's just there's I think that's what your whole job is to figure out right is is or at least if you're finding a lot of fun so how good is that it I assume

it's getting better with the amount of data there's a lot of people playing with data and that is a problem it is diff you're a student on campus you can use pre Qin you can get some information from that

mm-hmm a lot of the colleges actually have a subscription which you don't necessarily get access to cheaply once you're out you can check information on LPS LPS typically your whispering amongst each other and if you have friends who've joined on the LP side

they can kind of point you to who the better funds are and I think that they can also point you to who are their real up-and-comers if you're a junior person trying to come in and get a job I think

that you really should be asking these tough questions one because you want to find the GP which is going to take you seriously and is going to appreciate that you have push back otherwise you're just going to be a voice box rather than

someone who's a partner at the table the person applying for these specific roles that they will have they are probably in the seat of a cap intro right within the within prime brokerage at a bank is that who you're talking about like somebody a

couple years out where they're now trying to figure out what their next step is and they say hey I'm thinking of going in house XYZ fund you're saying well don't just jump first verify a lot before before you jump yeah I think

whether you're a first-time applicants trying to come in to a fund or whether you're coming in from a more mid-level kind of a role I think you want to be asking these tough questions I think you know even if you're junior you should be

able to look the GP in the eye and say what makes you have a unique edge and how is that consistent and repeatable and which are they able to what should they be listening to and what should they be listening to and or any red

flags besides that you decide strategy drift like you mentioned but specifically anything else about you know if they've been together let's say it's me let's say you're not the top candidate you're you're a decent candidate and you can't

be too picky or cheesy you have a let's say a few offers and what's what's some red flags that I can look out for or because I know I made this mistake early in my career I jumped to a fun and then

it blew up you know you're later and I was fired six months later so I clearly didn't do enough research but you know if I had pushed back I felt like I don't know if I would have even known what to

ask or even been been smart off to realize the trouble there because I feel like everyone would have just hit it um but anyways how would you go about doing that actually you bring up a very interesting point which is a lot of GPS

are lying about how easy their fundraising is guys is coming along mm-hmm so everyone's always about to close they're about to get massively oversubscribed first close and oh man we did this great first close and we're barreling down towards the finish a lot

of gp's are exaggerating and fundraising is not easy so everyone's sort of trying to puff themselves up and be you know seem bigger than they are the car that's that's a tough one so the mistake you made is actually very understandable

again it's also the information that's very difficult to get a handle on you know but you're right the things you want to vet for our team have you been together for a while have a lot of turnover that's a warning sign yeah - if

there's no strategy drift it's hard to kind of you know prove that but that's important you want to talk to really the LPS because they'll give you more of an honest answer about how a GPS is doing but if you're talking about fun and

they're saying their fundraising is going very well you want to ask them when's that first closing have you closed at least 50 percent of your target and when are you doing the final quote how much more time you have etc

how well is other things progressing from your earlier LPS what percentage of them are coming into this fund and you just try to figure out you know whether there's really capital flowing into this platform you want to make sure that the

teams stuck together through through the years you want to make sure the strategy has been consistent and you want to also ask them about the size of the fund and whether it's sort of appropriately sized to what they're trying to do and I think

most importantly want to ask the LPS because the GPS you have to assume we're going to give you a spin the LPS on the other hand are a wonderful source of information and they share your information amongst each other and are

they pretty easy to get in touch with the people who work at the LPS like a you just start like you know I'm trying to network with them or is it obvious of people if if you have friends or alumni

that that were there it's easier but it's something where they're usually pretty open to talking about that type stuff her or not friends and alumni is probably the easiest way right so before I joined my first private equity firm I was able to

ask a lot of tough questions and they had already had a couple of very well-known LPS and I was able to find someone there that was able to triangulate and the fact that she told me that this is one of the best LPS that

they have gave me a lot of confidence and I think if I had done that same sort of due diligence on the Social Impact Fund I think the LPS would have given me a very different story you told me that

it's very difficult for that platform to raise because the strategy drift and inability to hold a team together interesting also we kind of drop you know maybe about 10 or so best practices for upcoming funds about becoming funds

which I love to hear and very helpful yeah I'd love to hear yesin the number one thing is pre-screen and qualified leads 90 percent of the challenge is figuring out who you should actually be spending your time on and talk to so you

have to be able to vet them for whether or not they have money and whether they have money for your specific strategy and what their program is so for instance if you're talking to an LP and they're getting super excited and asking

a lot of questions and they want to see you again and you ask them have you actually put money into TMT before have you actually put money into media before you invested in Africa before and their answer is no chances are you're not

going to be the first and so it's about figuring that out too is to try to use as many referrals as possible so cold calling very rarely works in this business it's the challenging to get referrals but that's where needs to come

from that's why when you look at new funds the first money in is always the previous business associates and trends of the GP team so you know you have the founder who goes off and sets up his new

team it's his he's the guy who's got to bringing the money he's got to bring in those relationships right people go with trust and then those out these need to refer you to other elements you can meet people in conferences you can do cold

move outreach I've done plenty of that but the ones that always work well is when there's a referral that always better I'd say number three is soft marketing and that's something that gets overlooked by a lot of funds the

best time to be raising is when you're not officially raising where you can have meetings with LPS and have a more gentlemanly relaxed conversation and we'll always have that program running right it's not a hey we're closing in a

couple months and blah blah blah trying to increase that pressure it's more relaxed and and it's there's the pressures off yeah yeah you can do develop a relationship better absolutely come and spend some time together let's talk about our strategy we'll let you

know when we're raising because once you actually start raising but stopwatch starts ticking you know actually most of the fund the fund Docs will give you 12 months from the time when you do your first closing to do your final closing

lp's have zero incentive to come in early into a fire they want you to start doing deals so they can see how those how well your fund is performing right or they actually pull the trigger so they're always trying to delay it all

the way out to the end however if you spend the soft marketing period between fundraisers to build up and a list of LPS that are actually excited we may end up being able to do is to come is to do

soft circling and to say hey look we haven't launched fundraising yet but we're going to soon and by the way our funds already more than 75 percent or 50 percent subscribed so you really need to come into the first close if you're

planning on being in this fund and that only works if you've spent time with them over the months or years between your funds mm-hm so that makes a lot of it okay that's great and then to that to

that same n you want to have 50 percent of your target capital closed on at the first close it looks very weak and and I see a lot of fund managers make this mistake when they come around and they

say okay we're going to do a first close just to lock down a little bit of capital maybe 15 20 percent because we have a certain sponsor and LP then wants to give us some money so we're gonna do

a first close and lock it down that can be a terrible idea you need to do a first close with 50 percent of the capital because it sends a very strong signal to the market and it creates a

scarcity value for the remaining amount of potential capacity that you have in your interesting so what if what if it's just you can't get to 50% you I guess you didn't that means you you need to drop your your your top line number but

doesn't that send a bad signal as well well you don't want to ever be announcing before you're actually ready and out of your soft clothes has done you know the size of your fund I always recommend to cheapies underestimate and

under announced the size of your fund you look much better if you talk we're gonna go raise a hundred million air in dollars and you end up saying oh my gosh too much demand we had to push it up to

a hundred and fifty where I was going to raise three hundred but gosh darnit the lp's pushed me and he took in a billion you don't want to be the guy who says hey I'm gonna go raise a billion dollars

and then you come back to the market and you say oh well we were only able goes on three hundred Magnussen's you don't want to quote a large number for two reasons one is well three reasons one is

the LPS don't feel their scarcity value so they can delay writing you a check because there's still capacity right to you know you might not hit your target or it might not be as fast for you getting the target and so you look weak

and and three you know actually in many cases look like you might look like you have too much of an ego or you have too much of you know your looks like you're biting off more than you can chew it's

better to come out of the gates saying hey we just want to focus on returns not on the size of a um we're gonna come out with a reasonable size we already have a pipeline which accounts for more than two times this fund asset

that we're raising and then if the LP demand is so high sure you can always push the target up and make sense and always give a range so then you know we're raising teen one to two hundred million so that way if you close on one

twenty five you're well within your range right make sense totally so you know another thing that I that's important and this night I seldom see this done is to keep top of mind using short frequent contacts and messages so

it's kind of like if you're trying to get a girl to date you don't want to write her a long-winded email or text message which goes on for pages and pages and send that out to her every six

weeks does she think your psyche mm-hmm you want to send short little sms's there oh you're so sweet I'm thinking of you oh I sent a little rose by your office you know oh hey you know that song with you like hey I got you a

mix idea there's a senior that and I sent to work and whatever yeah that's sort of the analogy right short frequent messages yep okay and you know what I see GP is doing is they only talk to the LPS

when its fundraising time when you're thinking of fundraising or maybe every six months or every quarter they send out a gigantic long quarterly email where they set out a Christmas email which is like three pages or ten pages

long where they talk about every deal they did and no LP sits down and reads that except some crazy LP like you want to just be like hey quick message because it's you know every like four to six weeks there's a quick little message

saying hey we had an exit with one of our portfolios hey you just did this new deal oh right little highlights and they just you know had a great result you know yeah just you know short frequent you know and you know now that I'm on

the deployer side there's very few funds that do that but the ones that do they really carve out us a bit of mind share of especially than their space and so you're saying to do that even you know

once the funds closed just because you're gonna potentially be raising again in a few years or start at the soft grades again for fun - sure so yeah well especially if it's close yeah time between fundraisers the most

important marketing time that's that soft marketing yeah and you want to keep on top of mind that way in 24 36 48 months when the next fundraise is happening you've spent a lot of time cultivating that relationship it also helps because then when you

actually are going on road shows to socialize the funds without fees you're top of mind and it makes it much easier to reach out to them it's not as much of an ask to say hey sit down and spend

time with me if you've been sending the messages every four to six weeks it just so happens that you're in New York or in San Francisco and on Roadshow or on a trip and right I'd like to sit down

further and discuss that makes a lot of fun since that familiarity yep sure materials you know I always like to say you know kind of stager you want a simple short crisp teaser and a short deck you know no more than 10 slides and

then you want a long deck and I actually have seen and so that's you know you're 30 to 50 slides and then you have an extremely long deck which I've seen a few GPS now I'm using instead of a long

private placement memorandum so that might be going a little bit more too much into tradecraft here but my thinking is always when you're building up the relationship you want to keep things short and sweet yeah but you still want a lot number of large and

longer deliverables that you can give people if they really want it again so I have a second teaser and a short deck your two most important weapons and then a long deck for when it's appropriate makes sense okay tracking and follow-up

super important if your aren't tracking and following up and treating it like the sales process you're already doing very poorly and that means having a CRM so I know some GPS are using pipedrive some are using a number of solutions

which are really more tailored to the PE industry and I actually like Google sheets and the reason I like Google sheets is I can have lots and lots of copies so I can slice it in many ways I

have one for each city and that way if I'm going to say New York or San Francisco I can just use a simple tool which plugs into Chrome to do mail merges and I'm just email everyone say hey I happen to be in town in about

three weeks and would love to be able to sit down and discuss I can do that easily you can do the mail or just really easily and everything at super super efficient yeah great yeah and I can have a virtual assistant or

secretary input stuff into that Google sheets because it's just Excel whereas in the past where I've tried to use more complex CRMs at Salesforce sales IQ or what have you it I can't have support staff do a lot of the hat that have been

lifting for me and it's quite cumbersome if I wanted in slide and I sit and try to send out a mass message when I'm coming to town they're just super practical to be able to do a Google sheets thing crowd hype drives is

nice because you actually can do a sales funnel and you need to treat a lot of capital raising like sales funnel we've got some have an understanding of where an LP is like are they sort of a lower

tier LP for you with lower likelihood you have a higher expected value of with a better chance of closing or are they really on your shortlist where you wanted to stay you know pretty tight and close with them got and in terms of how

you get that initial database together of contacts and target scissors is there like well known lists and I know there's places where you can know we we even sell a family office database but I know is there like one specific I guess it

depends on the fund but those are one specific area you'd recommend looking well pre Quinn is pretty good for private equity the challenge is that then it becomes a cold emailing game and I'm not a huge believer in that mm-hmm so I'm

really much more of a believer of introductions okay have I used frequent sure but the best is when you have L warm intro done business meeting ask and they recommend you on to the next set of LPS and they recommend you on to the

next set of all these great and that's actually where sort of placement agents come into the picture because it's a great extent you're not only hiring a placement agent to advise you on fundraising strategy and to outsource a

lot of that heavy lifting but you're actually hiring a placement agent because they're continuously in the marketplace dialoguing with LPS and so they're providing access and an understanding of which LPS are currently deploying for your type of strategy and

do funds typically just hand it all off to the placement agent are they trying to do this in in concert with them like how much is it outsourced it's varies but is it that come submit varies on whether or not on the size of the fun

mm-hmm and whether or not they have in-house investor relations people right there are GPS that are just handing everything off so placement agent and then the partners themselves for getting involved to provide information but the policeman nation is basically running

the impact I process the way an investment bank typically would on a deal and there's other cases where it really is a lot more input from in-house and they're kind of holding the placement agent to account and they're really using the

placement agent for access to LPS and for figuring out which LPS are qualified got it any excess so the last thing I would say is you know there's sort of no substitute to getting out on the road and meeting people face-to-face so I

know a number of funds where they make it a point every quarter to hit the road and do around the world tour and that tends to be very effective because you know you can only do so much over a

video chat or a phone call it really helps to actually see people face to face and that particularly is the case if you're going to non-core locations to raise capital ya know for sure another question I had specifically on

just fun size and track record and how important that is and specifically for the smaller funds the this say 200 million dollar funds and you know maybe they don't have the budget to go travel all around the world or maybe they just

I guess where would they start I mean just trying to figure out okay for their specific strategy they need to focus on these 20 LPS and just really try to develop a relationship any way they can well 20 is far too small it's still a

numbers game so them to be up north of a hundred if you're going to have a successful raise and even that is a hundred of which are pre-qualified and screened right where and and tiered by you or hopefully they've been introduced by a

warm contact gotten so the you know I'm actually I think travel is still pretty important you can find some efficiencies by going to conferences mm-hmm super return is one conference organizer which puts on events which bring a lot of the

LPS together so you can have a lot of efficient meetings great but you know really a lot of the LPS are concentrated in a handful of cities it's New York it's London its Zurich in Geneva it's San Francisco they're less searched then

and some great cities buddy who's one to go if you want big sovereigns you know there's Singapore and Dubai and you know your sort of travels not that bad you don't have to fly first or even business you can fly coach you can take mid-range

hotels but you've got to get out there so that people can meet you and there's sort of no substitute for getting on the road and conferences are well worth it because it brings together a lot of LPS and you can have very efficiently even

one-hour long meetings all day long and get on the radar of a lot of different employers Capital do you feel like those those conferences tend to be more about just kind of initial the LPS that are doing that are they just kind of feeling

things out are they actively looking to put money to work or what's been your experience that those is it did actually yield actual you know any sort of funding or are they typically more just they do okay it depends though I mean the key for you

know is to again try to do the pre-qualification on kili before you sit down with that aisle you've already spoken them a few time and then it's a been difficult it's much more productive when you're actually there face to face

and yep okay and I think it depends which conference so super return I think it has a number of pretty high-quality conferences I think there's a number of others which are which are decent as well and but you know the key is it's

not enough to have a one-hour meeting keys to have a one-hour meeting that's been pre-qualified that that LP can invest in your strategy and has my boy so how are you actually supposed to run a fund and run at the same time it

sounds like it's if you're a small fund how do you I know you have to make the time because it's the lifeblood of the fund right but I guess how do you balance that if you're just getting pulled in so many different Corrections

is it something where you try to just make it as efficient as it possible with the this software comes into play I mean using Google sheets it's not some sort of fancy software so what do what would you recommend or somebody you're trying

to look at deals they're raising you know maybe they're trying to raise their first fund I mean someone who's raising their first fund they probably already have success like you said they're coming from previous fun and they already have that

initial kind of anchor LP but what about what about some other funds that you know what would you see what would you suggest to them well I think it's really tough if you're a small fund and because it's difficult to balance running if I'm

doing fundraising and you see this especially within venture capital because those by design tend to be running smaller funds right and the cheapies have to get involved directly and because there's smaller funds they tend to be able to attract a placement

agent so you know it's it's it's a challenge that's why people do hire if they're large enough placement agents that's why did you consider in some cases hiring in-house I are so the deal team can kind of free their hands to do

this otherwise if you are a principal and you are running the fund and you still have to do fundraising you need to look to your immediate network because again the chances of you finding somebody new who's never done business

with you - now back you on a fund is very low so you know my advice would be if someone is thinking of launching their own fund get a hedge fund or private equity fund you want to make

sure you have a fair deal of money from people who have who have done business with you in the past they're gonna support you on this new venture ya know make sense for sure anything else you want to share with the listeners before

and we call the pod I think that those are the main ones and I think you know just to re-emphasize a few of the points is just you know pre-screening and qualifying your contacts super important trying to get a good read on how those

meetings went and kill those metal ones that you can have a low expected value and really focus on those few you think have a better chance of writing a ticket is key and you know follow-up is very important to make sure that you do that

a meeting doesn't mean a thing if they forget about you in a few weeks so you have to stay top of mind okay share a good way to stay top of mind is those short frequent messages and you know between funds make sure

you're fundraising and flying off marketing funds you can have those so you can have your your leads pre-qualified time to fundraise and you can just kind of you know press the trigger and go that's great that's great well thank you

for taking the time thanks again for sharing so much information and being so forthcoming with with the listeners and thanks to you my listeners at Wall Street Oasis if you have any suggestions whatsoever please don't hesitate to send

them my way Patrick at Wall Street Oasis calm until next time [Music]