Sixpoint’s Zoller Fundraising Tips for GPs: Talk to Your LPs and Have a Plan Before You Market

Eric Zoller co-founded Sixpoint Partners in 2007 with Seth “Yossi” Siegel. The placement agent, which has offices in New York and San Francisco, helps GPs raise capital for funds from $300 million to $1.5 billion in size. They also advise on the sale of secondary positions.

Zoller spoke to me by phone to give me some tips on fundraising.

What’s the number one thing that GPs do wrong when they fundraise?
Poor communication with LPs is the number one failing. This happens from two perspectives. Too often GPs will announce the launch of their fundraise without soliciting input from their existing investors. GPs should maintain an ongoing dialogue with LPs before, during and after an annual meeting. However, they sometimes will spontaneously announce to investors the fact that they’re coming to market. There isn’t enough ongoing communication about the firm’s development, strategy and fundraising status on a day-to-day basis between GPs and the LPs. These are people that you have to have ongoing communication with. Existing investors shouldn’t hear about the launch of your fund from a news article or chatter in the market. They should really hear about the launch of the fund from you. Also, the GP should really solicit existing investor input before going out. This is very important.

The second problem happens when GPs tell their story to new investors. The biggest mistake is to focus too much on the past. It’s important to talk about your historical track record and where you made mistakes. But people don’t talk enough to new investors about the current market environment and the market opportunity going forward. The market environment that the new investor is looking to evaluate today is very different than what it was in 2005. If you are talking too much about 2005 that is not as relevant as to what is going on in 2012.

How often should GPs be talking to LPs?
You want to be always talking to your LPs.

What can firms do to shorten the fundraising cycle?
You should always be pre marketing. People think it’s just talking to LPs three months early or sending a newsletter. In this market, you need to be always marketing and always communicating…don’t just send out monthly newsletters. You need to have a plan, you need to have a dedicated resource. Someone who will be helping you communicate with LPs.

We work with GPs between fundraisings to help them formulate a strategy with LPs. So when they do fund raise, they’re that much further ahead. By the time they go out, the LPs are already familiar with the GP, familiar with their story and the market opportunity, and they’re familiar with the GP’s track record. The GP is not coming in for the first time to tell the LP who they are.

What can a GP do if their fundraising goes bad?
If a fund has a good communications plan, you shouldn’t have a failed fundraise. Once you talk to investors and they’ve given you input, and you’ve pre marketed to new LPs, you will have the feedback to decide about the fundraising process. Make sure you are following up with LPs. When investors don’t get information [from the GP], the fund may lose momentum. If you stall, that’s one of the things that could lead to a failed fundraise. Another is that [the fundraising] takes too long and it gets stale in the market. Another is you go out too early and your track record isn’t developed enough.

What books do you read?
The last book I read was Michael Lewis’ “The Big Short: Inside the Doomsday Machine.” It’s a quick read. What I’m currently reading is the biography of Steve Jobs. It’s a fascinating book for totally different reasons.