Five Fallacies of Fundraising


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Nick Donato: Folks, hello. Welcome to the show, where we will be outlining five fallacies that may be slowing down your private capital fundraising.

We are also going to be unveiling the results of an exclusive GP survey, which managed to capture over 250 respondents from a cross-section of the industry, and that survey gets into some really interesting questions. Like, when should key persons travel to meet LPs? Or, how should you handle an early request for fee concessions? Many GPs are fumbling these types of questions, and so we brought in two fundraising experts from KAP Group, which is considered the premier capital-raising and IR advisory firm, to really just help managers fine-tune their investor relations and fundraising strategies.

Before we get into all that, allow me to quickly introduce myself and breeze through some quick housekeeping. I am Nick Donato. I’m an industry specialist here at Navatar, which is a cloud software provider for the private funds marketplace. I’m going to be your moderator, and I promise to keep things to about 20 to 25 minutes with time reserved at the end for your questions. To submit them, just use the GoToWebinar widget on your screen, there.

Moving on to the next slide, I want to give the quick background on Navatar before introducing you to our two guest speakers. Navatar is considered the premier cloud software provider in the private equity, and you could say, wider private capital market space. We have over 600 customers across 35 countries, and essentially, what we do is offer a platform that makes it much easier to manage your investors, your deals, and your portfolio. So in the context of today’s webinar focusing on fundraising, that means that we can help you make sure that no LP relationship goes ignored. Or, for instance, we can help you target your most high-impact investor relationships before you head out there on the fundraising trail.

In fact, if you go to, you can see what some of those tools look like, and you can also hear from our clients, who have provided us testimony showing that Navatar’s helped them ensure investors receive more touch points, and really it’s just the engine behind a smoother and more efficient fundraising experience.

That being said, I am now excited to be handing things over to Erin Roeder and Christina Anzel of KAP Group, who are going to introduce themselves and then surprise you on what fallacies you may be committing out there on the fundraising trail. So, Erin, over to you.

Erin Roeder: Thanks, Nick, and hello, all. My name is Erin Roeder and I’m a Principal at KAP Group. Prior to KAP, I worked in strategic marketing for Metropolitan Real Estate, which is now part of the Carlyle Group. So I’ve worn the hat many of our listeners wear as well. I’m delighted to be here today with my colleague Christina.

Christina Anzel: Good morning. It’s great to be with you today. I’m Christina Anzel, a Project Manager at KAP, and I was previously Head of Investor Relations and Product Head for the Energy Infrastructure Group at Ares Management.

Erin Roeder: As for background on KAP, we help real estate, private equity, and other investment firms attract and retain institutional capital. Since our founding in 2009, we’ve worked with more than 50 managers on over 80 engagements. Each year, we speak with over 100 managers, and are in regular dialogue with our LP friends and partners. So it’s safe to say when it comes to fundraising, we’ve seen it all. And as we’ve worked with clients, we’ve identified a number of common misconceptions about the fundraising process. For this webinar, we thought we’d put together a greatest hits of fundraising fallacies and share our thinking around the most efficient and effective ways to approach these questions that arise time and again. As Nick mentioned, to tee this up and gauge this group’s perspectives, we post five SAT-style multiple-choice questions. Over 250 of you responded, and here’s how you addressed the first one.

We asked, “If you’re looking to raise $500 million of institutional capital, how many meetings should you plan to schedule?” This group was pretty divided on whether you needed over 50, over 100, or just as many meetings as you could get on the calendar. As it turns out, our perspective on this is D, none of the above.

Something we hear all the time, it doesn’t quite jive with our experiences: “It’s a numbers game.” Many managers believe that the more meetings you have, the greater your chances of securing an investment. We think what it really is, is a relationship game. Throwing darts at a map is rarely an effective fundraising approach. And meetings are far more likely to result in a commitment if you have a relationship with the investor. Like most meaningful relationships, GP-LP relationships are cultivated over time. In some cases, five years elapsed between the first time our clients need an LP and the first time that LP commits to one of their funds. Particularly if your firm is young, investors may track your team and performance for a long time. They want to get to know you, they want to see how you do across cycles, they want to assess the strength of your organization.

For those reasons, it is important to have meetings and spend time with prospects to plant the seeds for future commitments. You can do that during a raise, and you can and should do that when you’re not raising a vehicle. And yes, during the course of any given raise, you should be prepared to meet with many more investors than are likely to commit. But we encourage you to really prioritize, because during the craziness of your fundraising period, it’s critical to spend your time wisely. Too many meetings can actually be counterproductive. Whether the prospect you’re in front of has a 90% chance of committing or a 0.009% chance of committing, they’re still likely to send you a DBQ and a ton of information requests. Every prospect’s due diligence process is time-consuming for the entire organization.

Your IR, finance, and investment teams will all likely be involved. So be thoughtful. We have our clients tier out prospects in advance of their raise by prioritizing any LPs with whom a manager has existing ties and then identifying additional investors who’ve expressed interest in their strategy and risk profile. We make sure the LP’s typical bite-size could be a fit for the fund in question. We look at LPs’ recent task commitments, and assess how aggressive or conservative they are in taking risks on new managers. Once you have a sense of who to prioritize, spend your time during the raise knocking the cover off the ball for your highest probability prospects.

The other reason it’s important to be thoughtful about how much diligence you sign up for is that during the fundraise, the deal team still has to keep doing what it does, which is investing and managing assets. Ultimately, it’s your track record that’s your most valuable piece of marketing collateral. So the investment team needs the bandwidth to keep executing business plans and generating the returns that attract LPs in the first place. When it comes to deciding how much time to invest in a given LP’s diligence, you might experience tensions within your firm. Capital-raisers may want to follow every lead, or the portfolio analysis team complains they’re drowning in quantitative questionnaires. We recommend developing a process at the outset and appointing decision-makers who can quickly weigh the costs and benefits of pursuing a given LP when it feels like a close call.

Christina Anzel: Okay, let’s move on to topic two. We asked, “In a meeting with a prospective LP, what’s the best use of your pitch book?” A majority of you suggested you should ask the LP what they want to cover in the meeting. There is wisdom in this because you should be prepared to be flexible and to spend the bulk of your time addressing the LP’s interest and concerns. Though we suggested a well-crafted deck, serves an important role in a meeting. A fallacy we hear all the time is, “The best meetings are those in which you never open the book.” But we recommend opening your book and still making the meeting personal.

And here’s why: When you don’t open your book, you won’t know for sure if you’re remembering to hit on your key points. Great conversations with LPs are fun and they do help build relationships. We’re not saying you should avoid these. We’re suggesting that you use your book to stay on point and really engage a prospective investor. We want that investor to walk away from your meeting feeling compelled to invest in your fund for specific reasons that you’ve articulated.

In our experience, opening your pitch-book can help make this happen. Use your presentation to guide the conversation. Talk about your team and strategy, and how your strategy fits within the broader market. Walk through your track record. Use the numbers on the page to help frame your story. What is your sweet spot? What lessons have you learned? How has your strategy evolved? Use your case studies to illustrate your strategy. How are you different from your competitors? What are you doing to provide value-add? And finally, be sure to really listen to your investors. Allow them time for questions, and ask them questions.

Erin Roeder: Alright, topic three. We asked when a fund’s key persons need to attend meetings with prospects. And on this, a majority of you saw eye-to-eye with us. The fund’s key person should plan to attend every significant meeting with a prospective LP. But not everyone’s as savvy as you all, because we often hear, “The principals don’t have to travel.”

Now, we’d be the first to say we have nothing against IR professionals. When I worked at Metropolitan, our capital-raisers traveled to LP meetings all the time. And they played an important role. They’d been in touch with investors throughout the year, so knew their hot-button issues and could brief colleagues in advance. They built a personal rapport with investors and provided consistency. They kept track of questions and were responsible for follow-up. We really relied on their organization and their relationship-building skills. But they never traveled alone. In every meeting they were accompanied by one or two senior people from the deal team. We often hear from LPs that as much as they value their interactions with IR professionals they want to get to know the people who are sourcing, diligencing, and running the deals on a day-to-day basis. Since you’ve got this one down let’s move to topic four.

Christina Anzel: Okay, fourth we asked you, “Under what conditions do you expect LPs to be most likely to re-up?” A majority of you felt the most important factors were sticking with your proposed strategy and meeting or exceeding your return targets. We agree and the reason we pose this question is because we wanted to have a chance to talk about the concept that institutional money is sticky. Well, we think it’s a little bit sticky. LPs are loyal provided you deliver on your promises. Like, have you met or exceeded return targets? Have you stuck to your knitting? Have you deviated from your strategy? Have you exited deals in a timely fashion, and have you been a trusted partner. Existing relationships do carry the weight of incumbency and so if their performance is strong, the LP will likely be loyal. Okay, let’s turn to our last question for the day.

Erin Roeder: Finally, we asked what you should do if a prospective investor asks about fee breaks early in their diligence process. The largest cohort suggested detailing the conditions under which you offer fee breaks. We prefer the approach outlined in C, which is to explain that you believe your fees are in line with market and you’re not considering concessions at this time.

Clients ask us about fee breaks all the time. Everybody is understandably so eager to secure a commitment, that they ask about what fee breaks they should offer as they’re walking into a first meeting. The hope is that fee breaks are powerful motivators. In our experience, fees don’t make or break an investor’s decision to commit. Unless the fees are outside of market norms, we’ve never heard an LP get excited about a manager’s strategy, be impressed by their track record, get fired up about the market opportunity, and then say, “Man, I just can’t pay the management fee.”

That said, there are absolutely reasons to trot out incentives. For instance, fee breaks can be helpful in incentivizing an LP to come in earlier than they otherwise would. A first-close fee break that nudges an investor to commit early can help generate momentum for your whole raise, and a size-fee break might encourage a larger investor to increase its commitment over a significant threshold. But before you start having those conversations, make sure the LP is really serious about committing.

And think about one other word of caution. Our clients are sometimes surprised by the political complications that arise when they create a seemingly reasonable bright-line rule and offer breaks to only some of their LPs. One client recently found themselves in a sticky situation with a very loyal and engaged investor who had committed to each of their previous four funds. He’d participated in coal investments, he’d sat on their advisory board, but the absolute maximum he could commit to a fund was about $40 million. So he was understandably frustrated when for fund five, a client offered a fee discount for any investor who committed over $50 million.

We recommend managers identify these potential sensitivities at the outset and initiate dialogue with existing investors. You might want to approach your advisory board if you have one prior to launch to get their perspectives and share your thinking, that will help ensure your approach the market with the full support of your loyal LPs.

Christina Anzel: And those are our top five fundraising pitfalls. To summarize, our key tips for a successful fundraise are to remember, that one, it’s a relationship game. Two, use that pitch book. Three, make sure your key investment professionals are at the investor meetings. Four, investors are loyal so long as you deliver on your promises. And five, don’t rely so heavily on fee breaks to make your fundraise go quickly.

Nick Donato: So, Erin and Christina, all five good points to remember, and I see that it is sparking some questions from our audience. So instead of me taking those on I will leave it to our two fundraising experts to answer those, if you want to take them now.

Christina Anzel: Absolutely. So let’s see. Not surprisingly, looks like a lot of questions are coming in on fees. Erin, would you like to address this first one? LPs push hard on management fees, but we’re really relying on these to run our business. What’s the most effective way to push back without alienating the LP?

Erin Roeder: When it comes to fees, sure, LPs are looking for discounts where they can get them, but what sophisticated institutional investors are really looking for is alignment. A good partner wants you to be able to compensate your employees, attract top talent, see you grow.

So as long as it’s the case that you really need your fees in order to do those things, show your operating budget. LPs are really receptive to your being transparent enough to walk them through a budget that shows what you’re spending the fees on. That’s sometimes sensitive for managers, but it’s something to really think about.

Another thing you can do is think about what else you can offer, if management fees aren’t where you want to negotiate. We’ve seen managers play with the GP-LP catchup, maybe talk to the LP and understand what’s driving their desire for a discount and see if you can come to a consensus. Alright, Christina, let’s keep going on fees here. If I grant concessions in my current fund, should I worry about setting a precedent for future funds?

Christina Anzel: Yes, that is a valid concern and something you should definitely think about. If it’s the case that you grant concessions in fund one for example and then you go out for fund two and it turns out that appetite is strong and perhaps you are or potentially could be oversubscribed, you can absolutely convey to your LPs that you’re not considering fee breaks this time round. You can explain that the first time you were encouraging LPs to take a risk on you and now you’re a more mature fund, there’s more interest in your strategy. And then additionally, as you prepare to launch your second fund, the market may very well have evolved around these. In this case, it’s also okay to decide against offering concessions in your Follow-on Fund, assuming, as Erin noted earlier, your fees are in line with markets.

Erin Roeder: Alright, here’s a broad one: What’s your experience with placement agents? We have a lot of experience with placement agents, including members of our firm having been placement agents. I think placement agents can be very helpful in setting up introductions. That doesn’t eliminate the need for the investment partners to be the primary face of the firm.

It’s interesting, because placement agents are most eager to take mandates that they think it’s easy to raise money for, and those tend to be the groups that have the least need for placement agents. So there’s a little bit of a funny gap there. I think placement agents are helpful if you don’t have existing relationships but have a strong enough strategy and track record that once somebody gets you in front of an LP, you can do a good job selling your platform. We can talk lots more about placement agents, but that’s a 30,000-foot perspective. Alright, Christina, if your contact at an LP leaves for another group, is the sticky relationship with the person who championed you or with the platform that invested in you?

Christina Anzel: Well, hopefully it’s with both. We recommend having multiple touch points with each investor for this very reason. If one of your primary contacts moves on, you’ll still have others within the team who support your firm and strategy and who are in a position to champion you. But, make sure you do follow and maintain contact with the person who leaves because that’s a terrific opportunity to forge relationships with, and open doors to new institutional investors.

Erin Roeder: Alright, we have a few questions here around what are market terms. I will enter that from the real estate perspective. There is some variety, but the most common terms we’re seeing, straight down the fairway setup, is a 9% pref, and a 50/50 catchup. Alright, let’s see, Christina, ideally, how many investment team members who travel to meetings?

Christina Anzel: We get asked this question a lot, and it depends on a few factors; in our experience, mainly the size of your team and the personalities of your partners. In my experience in general, the most effective combination for a meeting is two deal partners and an IR professional.

Of course, assuming you have the resources. Having two partners attend allows them to play off each other, and for the most part, two voices do sound better than one. The conversation becomes more interactive and the energy level ideally stays high just as long as you make sure the partners agree in advance on their roles to allow for an organized meeting and somewhat balanced speaking times.

But it is always important to think about your audience: Will this LP want to dive into the nitty gritty? If so, make sure you bring a partner who is close to the deals. Is the LP concerned about succession? If so, bring a more junior partner to complement the senior partner. That way, you’re showing breadth of your team, and that any future transitions will be smooth. Okay, Erin, what about pitch books? Investors often request a copy of the pitch book in advance of the meeting. How should we handle that? And if we do send a deck in advance, how does that change how we approach the meeting?

Erin Roeder: So there are a couple questions in this vein, and I’ll try to address it broadly enough to address each of these questions. If an investor asks for a pitch book in advance of a meeting, absolutely send it to them.

This question gets at the dual role of a pitch book which is, one, to serve as the guide for a conversation in a meeting, and two, to be a document that’s a good leave-behind read or a good read in advance of the meeting, for all the detail that you don’t cover in the meeting. It is important to be able to be flexible, and that’s some of what these questions are getting at, if an investor has taken a look through your pitch book, you may arrive at the meeting and they have three specific things they want to talk to you, maybe two deals they want to talk to you, something about your case studies they want to talk about.

So, be able to be nimble and focus on those areas they want to focus on. At the same time, we do recommend having the ability to do a 30 second version of each slide, so that you’re sure that even as you’re focusing on what they really want to talk about, you’re hitting on your key points. And if you have a super quick, tight scripted story that you can run through, you often can do both.

Christina Anzel: I think we have time for a couple more. Okay, Erin, how about this one. What if you’re out on the market again, but your most recent fund is still young, and you don’t have returns to show?

Erin Roeder: That happens, it’s always easier to market a successor fund when you have realizations. But if it’s the case that you are marketing fund two, and fund one doesn’t have a lot of realizations, you’re in a bit of a lucky spot, because your investors will be pretty forgiving of lack of realizations in fund one. By the time you’re in fund three, you might not have a lot of realizations to show for funds two but you absolutely should have excess to show in fund one. So, it depends how far along you are in the life cycle of your firm. Realizations are critical. They show that you can do what you say you’re going to do.

Alright, here’s one about how to segregate your IR personnel. If you have multiple IR personnel, how do you go about segregating the universe? By region, by institution type. Relationships are important but what about brand-new introductions.

Christina Anzel: I think that this also depends on the size of your team. I’m speaking from personal experience. At Ares, we did have multiple IR personnel in-house, and so we had distinct product heads, and we were more of the IR management, interacting all of the time with the sales force.

But we did have a sales team and they were primarily segregated by geography. So, some covering the west, the east, Europe, Australia, Asia, and they would all be coming in to me and filtering their conversations and follow-up in through me, all the time. And then for new introductions, they were the ones that primarily led that, but then I, as product head, would have the daily interactions with the LPs as well.

Erin Roeder: Alright, great. We have time for one more question here. And we’ve got our contact information on this file, so you’re always welcome to reach out with additional questions if we don’t get to you. Suggestions for questions at the beginning of the meeting: I find investors don’t want to answer that many. I assume this question is about what to ask the LPs at the beginning of a meeting.

And I think it’s nice to broadly get their take on what they’re interested in, what has been most attractive to you, how are you thinking about your portfolio construction, or get a sense of whether they are more focused on allocators or operators, get a sense on whether they are focused on specific regions, get a sense on whether there’s anything they don’t like.

I think the best criteria is just to try to get them talking about what has been appealing to them, and then I wouldn’t go so far as to then try to fit into exactly what you perceive those boxes to be, continue to be authentic, but it’ll help inform your delivery and your presentation. So, that concludes our question segment for “Five Fallacies of Fundraising”. And, Nick, I will turn it back to you.

Nick Donato: Erin, thank you. And Christina, thank you. And we were unable to get to everybody’s questions. We know the value of a short webinar so we want to keep this under thirty minutes. But as Erin had mentioned, for any follow-up questions, you can see contact details for all three of us, we encourage you to reach out. Again, thank you to Erin and Christina for the insightful presentation.

And I could actually answer a few of these questions. Yes, a recording of today’s presentation will be emailed out. That will be delivered straight to your inbox in the coming days, so just look out for that. Also, if you liked today’s presentation, I encourage you to check out We have worked with KAP in the past, and we have other great shows that spotlight where your fundraising best practices really should be. Again, it’s So on behalf of KAP and Navatar, I’m Nick Donato, and enjoy the rest of your day.