Unfortunately, placement is a highly fragmented industry. Sifting through all of the potential partners to find the right fit can seem as difficult as raising the money yourself.
Compounding the issue is that this is still very much of a “trust me” business making it a challenge to properly diligence agents. And the two most favored questions – “how much money have you raised?” and, “what investors do you know?” – don’t really do much to help distinguish between 3PMs. That’s because pretty much everyone provides the same answers (some variation of, “a lot” for the first question, and “all of them” for the second). Besides, just because a group has raised a bazillion, gazillion dollars, doesn’t necessarily make them willing to give you the appropriate attention – or even capable of raising any money for you even if they did.
Below are a few questions to consider asking as you evaluate prospective placement agents. One caveat before you go pounding people for information…this post is geared to those looking for a “true placement” arrangement (not “cap intro”). So, we are assuming that the remuneration involves some combination of a retainer along with a success fee, in exchange for a dedicated fundraising effort.
And to quickly address the question that nearly always arises after that statement – the answer is yes. In the situation as described, if you are expecting a multi-quarter commitment from an experienced, quality agent or team – then yes, you should expect to pay a retainer. In this business, you really do get what you pay for. And don’t forget, nearly every manager themselves receives a “retainer”– they just call it a “management fee.” As Red Adair said, “if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”
1). “From what you know so far, how would you describe our story and what is your process to further develop it?”
This question accomplishes two things. First, it allows you to hear an outsider’s perspective of your value proposition while simultaneously gauging their ability to define your approach and distill your message.
Second, the question presupposes that the marketer actually has a clear process around message development. I would be suspect of anyone that simply accepts what you give them without insisting on doing a deep-dive. Again – this isn’t cap intro. The 3PM’s job is to get you into warm, “high probability” conversations where a fit exists. No way to do that if you aren’t knowledgeable enough to push beyond at least some non-surface level questions.
2). “Who do you see as our target audience and what are they looking for right now?”
Not every fund is a fit for every investor. And no matter how you rationalize it, not every investor is a fit for your fund. The question provides you with a sense of the 3PM’s knowledge of current market dynamics. While they may indeed have a “dozen Saudi princes and UHNWI on speed-dial,” it’s unlikely they are in daily communication with all of them. Therefore, they may have little insight into current interests. So, it may be meaningless to you for your current raise. And while it could help in future raises, there is only value now if the investor is willing to take the time to allow the agent or you to lay the groundwork.
3). “How do you envision positioning our product in the market?”
“Fit” and “positioning” are two sides of the same coin. While “fit” just addresses whether or not your offering is capable of meeting a specific investor need, “positioning” is about proving that the fit exists. Merely being able to solve a problem for someone is meaningless if the person doesn’t recognize or appreciate it.
If a placement agent can create a “1+1=3” solution for you by uncovering a specific need that your fund solves for an investor, then this demand creation becomes a significant differentiator
4). “What is your sales process and what will you do after you talk to everyone you know?”
They are called “third party marketers” and not “third party sales” or “third party cap intro” for a reason. Again – I would be suspicious of anyone that just claims to, “knows people.” Assuming these are sophisticated institutional investors, there is pretty much zero chance that they are making an allocation decision based solely on a relationship.
Capital raising is a “numbers game.” The reality is that success comes down to a large number of low probability interactions. Much in the same way that successful investing is driven by picking the few gems from a large pipeline of opportunities. And just like managers, allocators end up saying “no” to a lot more ideas than they say “yes” to.
Raising money is a process, requiring organization, planning, and measurable datapoints. Experienced asset raisers will lay out their approach in a clear, transparent way. Eli Combs who runs Axis Global, an advisory firm providing consulting and direct fundraising, is exceptional with respect to this. Sure, he ‘knows’ plenty of investors but he does a boatload of preparation before ever picking-up the phone. This includes providing clients with a detailed roadmap around messaging – incorporating things like roadshows, conferences, and marketing campaign plans targeting both his existing network and prospective new clients.
5). “How do you measure progress?”
Put another way, “how do I hold you accountable?“ …and, “how do I measure the intensity of your effort?” After all, everyone knows what success looks like. But what does progress look like?
At the very least there should be quantifiable milestones related to the sales pipeline. Something to benchmark progress and effort. I would start by setting broad expectations for the number and quality of 1st touches, 2nd touches, all the way through the timing and amount of investments. You should also expect regular feedback with qualitative insights and weekly update reports pulled directly from a CRM.
Whatever it looks like, your relationship with a marketing partner should never be completely ad hoc. “Trust” is good – to a point. Any placement agents that expects you to just, “wind ‘em up and let ‘em go” is probably not one you want to work with.