December 21, 2018
Interviewed by: Privcap
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Pro Tip: Always Be Fundraising

The best way to prepare for your next fundraise is the never stop the outreach to LPs from your prior effort, say three veterans of the fundraising market. LPs appreciate a steady flow of information not tied to a specific capital commitment request.

The best way to prepare for your next fundraise is the never stop the outreach to LPs from your prior effort, say three veterans of the fundraising market. LPs appreciate a steady flow of information not tied to a specific capital commitment request.

Pro Tip: Always Be Fundraising

David Snow, Privcap:
Today, we’re joined by David Conrod of FocusPoint, Terry Mullen of Arsenal Capital Partners and Rudy Scarpa of Pantheon. Gentlemen, welcome to Privcap. Thanks for being here.

David, as a professional fundraiser, if a GP were to come to you and say, “I’m going to raise my next fund in a year,” what would you advise them to start doing right away?

David Conrod, FocusPoint Private Capital Group:
“That’s ambitious,” I would say, but they’re humbled very quickly, I would say. I think getting out on the road, starting a dialogue with as many prospective investors as you possibly can, is a good thing to do. Start the dialogue—you’re not immediately asking them for money, which helps, and it’s just patience and perseverance, I would have to say, if you have to come up with a couple words to describe the process.

Snow: Do you think that, in the current market, even seasoned GPs on fund four or five are underestimating the amount of work it’s going to take to raise their next fund?

Conrod: Some, not all. A lot of into fund four or fund five—they’ve been through the process and it’s never easy, as Terry could attest. You have to be methodical and thoughtful and never quit, and you’ll get there. The investors assume that the numbers will be there, right? So, they’re going to spend the time now on the management team, the process team and the theme and are these the right guys that can attract management and entrepreneurial talent? And, if they’re going to commit capital for a long period of time, they want to make sure that this management team is going to be with them. That’s what they’re sizing up. They assume if you’re coming in to see them that the numbers are there.

Terry Mullen, Arsenal Capital Partners:
I’d say the biggest shift in the last couple years is the institutionalization, not just of the asset class, but of those expectations and standards for managers like us. I mentioned some of the basics: clarity and strategy, clarity and model, track record, all the components of value creation, how’d you grow organically, acquisitions, what were the multiples, how much did you improve margins, why did you make these moves, how that evidence helped in this strategic buying. All those things together are things that you have to get organized on before you even go out and begin your pre-marketing. Get your house in order and your information in order and also try to distill that down to a crisp message, which is the hard part.

Rudy Scarpa, Pantheon:
Think of your investors as partners. They’re not just your investors, they’re your partners, they’re your limited partners, which means that very early on, go visit with them as you correctly said it earlier. Go spend some time with them. Maybe you’re not fundraising. That’s okay, it’s actually better to go visit with a limited partner when your hand is not out asking for capital. Give them an update on what’s going on in the fund. That goes a long way to building that relationship and laying the groundwork.

Mullen: I agree with all those things and I think being continuously in the market building relationships, building partnerships, people like to focus on what change as a GP. If you look at the last five or 10 years, enormous amounts have changed at your firm and at other LPs, so understanding two ways: where you’re looking to go, what strategies you’re interested in.

Snow: All three of you have talked about the importance of getting on the road, meeting your investors even if you’re not technically fundraising. In the old days, I remember people saying terms like “pre-marketing.” We haven’t started fundraising yet, but we’re pre-marketing. What does that mean and does it have relevance anymore when you basically need to always be in touch with a prospective investor?

Conrod: Yes, the term is maybe a little stale that you’re always in the market same with prospective investors, but I also think when you have a new strategy or a differentiated strategy, that may not have been around for a while or not … there’s a period of education that you have to go through. It’s going to take a longer period of time, so it does make a lot of sense to get out early on and try to develop those relationships and start the dialogue sooner rather than later.

Mullen: We invest in two areas: technologyrich industrials and healthcare IT. So, we talk healthcare. Healthcare is the enormous industry and there’s so many different strategies. So, we spent time educating them on what are the trends and issues driving the outsourced business services in the U.S. healthcare system? What is the U.S. healthcare system, where are these points of interaction, where is the value, where is the cost? Particularly for Europeans who are not as familiar with the U.S. healthcare system, we spend a lot of time educating them in that pre-marketing phase before even marketing because we want to establish a base level of understanding, then hopefully interest and then move forward in diligence.

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