While at a conference last month, I heard the line, “fundraising happens when you are not fundraising” in some form or other from speakers of at least three different panels. There is no chance I would have heard that statement come out of even a single panelist’s mouth five years ago.
It’s a crowded market and an LP’s capacity is limited. Naturally, their primary focus will be on re-up opportunities and other managers where they already have significant familiarity.
Give before you consider taking
If you want to get to a final close on your fundraise in a reasonable amount of time – and with a reasonable number of new LPs – you need to be communicating with prospect long before you officially kick-off your raise.
No genuine relationship ever starts with one person asking another for money.Kyle Dunn, Managing Director at MJ Hudson
We all talk about how important relationships are in our business – but in our quest to raise capital as quickly as possible, we seem to skip over the “building relationships” part and jump into the “selling” part the minute we meet someone capable of allocating to our strategy.
A “real” relationship, however, is one that involves giving something of value to someone without asking for anything in return.
That’s generally not what happens, though, in our business. In our business, we just reach out to strangers at random and ask them for huge sums of money without ever investing the time to get to know them or giving them a reason to get to know us.
My colleague, Kyle Dunn, who taught me this nearly ten years ago, makes the point that, “no genuine relationship ever starts with one person asking another for money.” For this reason, we have always argued that you need to be communicating with your audience regularly – preferably with value-added content that positions you as a thought leader – not just when you want something from them.
His point…the more you invest in these relationships, the higher the return – i.e., quality prospects and eventually, AUM – you can expect in the long run.
More importantly, in an industry like ours where products are mostly “bought” not “sold,” it’s critical to be top of mind when they eventually do decide to allocate to your strategy. Plus, it will take far less time to prove that you are thoughtful and interesting when you have been demonstrating it all along.
A little nurturing goes a long way in fundraising
Historically, managers made very little effort to nurture relationships of non-LPs post the closing of a fund. That is…until they went out on a new fundraise several years later. And, of course, irrespective of how much work a prospect may have done, those that didn’t allocate to a previous fund would undoubtedly end up starting over completely from scratch.
The implications for your next raise are two-fold. One – it should go unsaid (but we said it anyway not too long ago when discussing making investor relations a “profit center”) that your existing LPs need to be treated like the partners that they are. Providing an exceptional investor experience is no longer a “nice to have.” And two, be visible with value-added insights.
After all, it’s never too early to give people a reason to get to know you.