Around the world, more than 1,600 private equity funds are in the market seeking an estimated $673 billion, according to data provider Preqin. It’s a measure of the difficulty of securing commitments that so far their managers have only raised $111 billion, or one-sixth of that amount. So, what’s the best advice for making sure you get your fair share of the pot, and don’t end up associated with that dreaded phrase, private equity zombie?
Speaking last week at a fundraising Webinar hosted by Thomson Reuters (publisher of peHUB) and sponsored by Merrill Corp., Kevin Kuryla, managing director at UBS, and other speakers advised firms that it’s all about establishing early momentum—and not losing it. Signing up anchor investors who can convince other limited partners to make the jump is a common way to gain momentum; one way to lose it, Kuryla said, is to over-promise about the first close to on-the-fence investors. Slipped deadlines, or a smaller-than-forecast close, can raise questions about your credibility and about whether you can reach your ultimate target.
Flip through the slide show below to see the top 10 other fundraising tips offered during the Webinar. Along with Kuryla, the other three speakers were Chris Yang, a managing partner of Grove Street Advisors, Elliot Royce, a managing partner at Alpinvest Partners and Sheryl Schwartz, senior managing director, Perseus LLC.
[slide title=”Tip No. 10″]
Make sure your experience directly supports the strategy you plan to pursue. Any gap can mark your fund as dead on arrival.
[slide title=”Tip No. 9″]
Disclose weaknesses upfront in a positive, credible way, rather than letting LPs discover them later on their own.
[slide title=”Tip No. 8″]
Don’t drop the names of committed or potential investors unless they’re absolutely on board. Prospective investors will check with them.
[slide title=”Tip No. 7″]
Don’t underestimate the importance of your pick of placement agent, should you use one. Anything less than a top-notch agent may not be worth it.
[slide title=”Tip No. 6″]
Dig in for the long haul. Funds that held final closes last year took an average of more than 20 months to get there, according to Preqin.
[slide title=”Tip No. 5″]
Be prepared for extensive due diligence by potential investors, perhaps twice as many meetings as your last fund, and make sure you can quickly answer all questions and requests for information.
[slide title=”Tip No. 4″]
Having a differentiated strategy isn’t enough. Make sure you show how that differentiation directly leads to market-beating returns.
[slide title=”Tip No. 3″]
Don’t overreach on the target. LPs may stay away in droves if they don’t think you can hit it in a timely fashion.
[slide title=”Tip No. 2″]
Unless you’re a first-time fund, make sure you’ve got your prior limited partners signed on and ready to give glowing references. Potential LPs will reach out to speak to those who know you best. (If an LP is not re-upping, you may be able to convince them to sell their interest to someone who will.)
[slide title=”Tip No. 1″]
Hire a placement agent early in the process, if you’re going to use one. Once you’ve met with dozens of investors, and generated few takers, placement agents may consider your fund toxic.