I am pleased that my article "Compelling PE Roadshows: The Investor Perspective" has been published on PEHub. Here's the link: https://www.pehub.com/2018/08/compelling-pe-roadshows-the-investor-perspective/. The article appears below.
Compelling PE Roadshows: The Investor Perspective
By Allen Latta
Thousands of private equity funds are being raised right now.[1] For a fund in the market, that’s a massive amount of competition. Limited partners (or LPs), the investors in private equity funds, are constantly meeting with general partners (GPs), the fund managers, to select the very best funds in which to invest.
This means GPs have little room for mistakes on the fund-raising trail. A compelling roadshow is a key element to fundraising success.
Having met with hundreds of managers over the years, and after seeing the good, the bad and the ugly of roadshow presentations, I offer the following thoughts for GPs on how to have a successful roadshow meeting with an LP.
This article is geared to funds that will be institutional – $100 million or more marketing to institutions including pension funds, funds of funds, foundations, endowments and family offices. But most of the tips presented will also be relevant for sub-$100 million funds.
By Allen Latta
Thousands of private equity funds are being raised right now.[1] For a fund in the market, that’s a massive amount of competition. Limited partners (or LPs), the investors in private equity funds, are constantly meeting with general partners (GPs), the fund managers, to select the very best funds in which to invest.
This means GPs have little room for mistakes on the fund-raising trail. A compelling roadshow is a key element to fundraising success.
Having met with hundreds of managers over the years, and after seeing the good, the bad and the ugly of roadshow presentations, I offer the following thoughts for GPs on how to have a successful roadshow meeting with an LP.
This article is geared to funds that will be institutional – $100 million or more marketing to institutions including pension funds, funds of funds, foundations, endowments and family offices. But most of the tips presented will also be relevant for sub-$100 million funds.
Before Going on The Road
Consider Retaining a Placement Agent
Retaining a placement agent has many benefits. The placement agent will help a GP hone its strategy, prepare its marketing and due-diligence materials, contact LPs and schedule meetings, coach the team and follow-up with the LPs after the meeting to keep the process going.
The placement agent is very motivated to “sweat the small stuff,” as its success fee depends on it! If a GP retains a placement agent, many of the tips covered in this article will be handled by the placement agent, or the placement agent will mentor the GP on these topics.
Even if a GP is not sure about whether it will retain a placement agent, meeting with placement agents can benefit a GP in several ways. First, placement agents can provide market and competitive intelligence that can help the GP better position its fund.
Also, whether a placement agent is willing to take a fund to market is a litmus test for how easy or difficult fundraising may be for that fund. Placement agents are motivated to represent good product, and so if a GP can’t find a placement agent willing to market the fund, it may tell the GP that the process will be difficult.
Note that all placement agents are not equal. The GP should ensure that the placement agent has successfully placed funds with a similar size and strategy. The GP should also check references from other GPs the placement agent has worked with.
Finally, placement agents are motivated to market larger funds; GPs are well advised to not allow the placement agent to persuade the GP to raise a fund that’s larger than will support the strategy.
Get Ready
A surprising, but common, issue among emerging managers is that they start marketing their fund before they are ready to be in the market. They may have an idea, enthusiasm and a presentation, but that’s about it. In this age of sophisticated LPs and massive competition for LP time for new funds, a GP must truly be ready before embarking on a roadshow.
What this means is that the GP must have their marketing materials (executive summary, presentation, offering document) refined and finalized and their due-diligence materials drafted and uploaded to a virtual data room.
GPs should practice their presentation in front of their friends and advisers (attorneys, accountants, etc.), take feedback from these meetings and refine and hone their message and materials.
Further, GPs should be prepared for hard questions from LPs (track record, team dynamics, GP commitment, division of carry and management-company ownership are a few that come to mind).
I recommend that a GP complete the Due Diligence Questionnaire available from the Institutional Limited Partners Association,[2] which will well prepare the GP for questions and due-diligence requests from LPs.
If the GP can’t answer the questions in the ILPA Due Diligence Questionnaire, the GP isn’t ready to go on a roadshow.
Have a Concise, Professional Presentation
The fund presentation should be no more than 15 to 20 pages, should be clear and concise, and should address the team, the strategy and the track record. The team members must all have experience relevant to the fund’s strategy, and they must have a history of working and investing together.
The strategy should be well defined and one that the team has successfully executed several times before. Sourcing and executing deals, adding value and managing exits are all important items to highlight.
The GP must be able to show how the strategy is sustainable in the future and differentiated from other funds in the market.
The track record deserves special mention. Having an attributable record of investment success in the strategy for the fund is key. If the GP is marketing a first-time fund, they would be wise to heed the LP saying about first-time funds: “We invest in first-time funds, not first-time investors.”
The track record should include all deals and should be totally transparent. If there’s a blemish on the record, the GP should not hide it but rather address it so the GP can control its message about it.
Have LP-Friendly Fund Terms
LP-friendly fund terms can ease an LP’s concerns about this sensitive topic. For emerging managers, the fund should have a reasonable management fee that steps down over time, meaningful GP commitment, 20% carry on a whole-fund basis, an 8% preferred return hurdle, and other terms that will create strong alignment of interests among the GP and the LPs.
The fund-terms page of the presentation can make a strong statement about how the LPs will be treated.
Research the LP Before the Meeting
The meeting’s main goals are to establish a working relationship with the LP and for the LP to take the next step in what is often a many months-long investment process.
Establishing a personal connection with the meeting participants is really helpful. If meeting participants attended the same university or business school, worked at the same firm, or grew up in the same neighborhood, the connection this brings can be very beneficial. Researching the participants on their websites or on LinkedIn can help to identify common ground.
At the Meeting
Be Courteous
Being courteous should seem obvious, but it is surprising how many times an inconsiderate act can ruin a meeting.
The GP should show up on time and ready to go. Initial meetings usually last an hour. Usually the first five minutes or so are spent on introductions and getting settled. GPs should plan for the presentation to take about 30 minutes, leaving time at the end for questions and answers and next steps.
The GP should also be flexible in the meetings. Sometimes, LPs will ask questions during the presentation and other LPs may wait to ask questions at the end. This is the LP’s meeting, and the LP may have specific items they want to discuss.
GPs are well advised to give the meeting their undivided attention: They should not take calls, check emails, or text during the meeting.
Several years ago I had a meeting in which one of the GPs took a call during the presentation. Not only was it highly disruptive, but it sent me a message about how much the GP valued the meeting.
GPs should always treat everyone in the meeting with respect, from the most senior people to the most junior people.
Give a Good Presentation
Often, GPs are so excited about their fund that they talk too fast and use terminology and acronyms that the LP may not understand. GPs should make sure the LP is following the conversation.
If two members of the GP are present, each should speak. LPs look for body language, respect, fear, intimidation – signs that the firm may be autocratic instead of a true team. Make sure everyone in the room talks.
Focus on the Deals
GPs should talk about their deals -- the successful as well as the unsuccessful. Talking about failures provides an opportunity to discuss lessons learned. Also, LPs will usually find out about failures during due diligence, so GPs that discuss their failures are also able to craft the stories about why they failed.
Take Notes
While LPs routinely take notes, the GP should also take notes, specifically on the questions the LPs ask. After the meeting, the GP can review these questions, practice answers and refine their presentations if necessary.
Don’t Expect an Answer at the Meeting
The investment process for most LPs has many steps. The GP should not expect any kind of commitment at the initial meeting. What the GP can ask about is the LPs’ investment process and the next steps in that process.
After the Meeting
GP Debrief
After the meeting with the LP, the GP should debrief the meeting. What seemed to resonate with the LP? What were the questions the LP asked, and how were they handled by the GP? A GP can learn something from each LP meeting, and the GP’s message should be honed and refined as more meetings are held.
Follow Up
LPs are likely reviewing many different funds at once, and poor GP follow-up can derail an LP commitment.
GPs should provide LPs with periodic updates on deals that have been done, liquidity events, valuation events, and team changes. GPs should also provide LPs with updates on the fundraising.
Finally, many smaller LPs are second-closing LPs – meaning they will wait until a first closing has been held before making a decision. Providing an update on an initial close can add momentum to an LP’s process.
Be Patient Yet Persistent
LPs are often understaffed and are evaluating many different opportunities at once. GPs must be patient, as the investment process will likely take many meetings and calls, lots of document requests and lots of time.
GPs should be politely persistent, because even though an LP may not have been in touch for a few weeks, it may mean only that the LP is very busy and not that the GP has been forgotten.
However, the GP should not be overly aggressive. If an LP says no, the GP should not be argumentative (yes, it’s happened) and should not try to change the LP’s mind.
Be Prepared for Rejection
Institutional LPs see many, many funds each year, and will invest only in a very few of these funds. With thousands of funds in the market, GPs should expect lots of rejection.
Private Equity Is a Relationship Business
Private equity is all about people. A “no” from an LP for this fund may not be a “no” for the next fund. Because of this, GPs are well advised to stay in touch with LPs, providing them with updates on the fund’s performance. And remember, fundraising for the next fund starts the day after the current fund has its final closing.
Consider Retaining a Placement Agent
Retaining a placement agent has many benefits. The placement agent will help a GP hone its strategy, prepare its marketing and due-diligence materials, contact LPs and schedule meetings, coach the team and follow-up with the LPs after the meeting to keep the process going.
The placement agent is very motivated to “sweat the small stuff,” as its success fee depends on it! If a GP retains a placement agent, many of the tips covered in this article will be handled by the placement agent, or the placement agent will mentor the GP on these topics.
Even if a GP is not sure about whether it will retain a placement agent, meeting with placement agents can benefit a GP in several ways. First, placement agents can provide market and competitive intelligence that can help the GP better position its fund.
Also, whether a placement agent is willing to take a fund to market is a litmus test for how easy or difficult fundraising may be for that fund. Placement agents are motivated to represent good product, and so if a GP can’t find a placement agent willing to market the fund, it may tell the GP that the process will be difficult.
Note that all placement agents are not equal. The GP should ensure that the placement agent has successfully placed funds with a similar size and strategy. The GP should also check references from other GPs the placement agent has worked with.
Finally, placement agents are motivated to market larger funds; GPs are well advised to not allow the placement agent to persuade the GP to raise a fund that’s larger than will support the strategy.
Get Ready
A surprising, but common, issue among emerging managers is that they start marketing their fund before they are ready to be in the market. They may have an idea, enthusiasm and a presentation, but that’s about it. In this age of sophisticated LPs and massive competition for LP time for new funds, a GP must truly be ready before embarking on a roadshow.
What this means is that the GP must have their marketing materials (executive summary, presentation, offering document) refined and finalized and their due-diligence materials drafted and uploaded to a virtual data room.
GPs should practice their presentation in front of their friends and advisers (attorneys, accountants, etc.), take feedback from these meetings and refine and hone their message and materials.
Further, GPs should be prepared for hard questions from LPs (track record, team dynamics, GP commitment, division of carry and management-company ownership are a few that come to mind).
I recommend that a GP complete the Due Diligence Questionnaire available from the Institutional Limited Partners Association,[2] which will well prepare the GP for questions and due-diligence requests from LPs.
If the GP can’t answer the questions in the ILPA Due Diligence Questionnaire, the GP isn’t ready to go on a roadshow.
Have a Concise, Professional Presentation
The fund presentation should be no more than 15 to 20 pages, should be clear and concise, and should address the team, the strategy and the track record. The team members must all have experience relevant to the fund’s strategy, and they must have a history of working and investing together.
The strategy should be well defined and one that the team has successfully executed several times before. Sourcing and executing deals, adding value and managing exits are all important items to highlight.
The GP must be able to show how the strategy is sustainable in the future and differentiated from other funds in the market.
The track record deserves special mention. Having an attributable record of investment success in the strategy for the fund is key. If the GP is marketing a first-time fund, they would be wise to heed the LP saying about first-time funds: “We invest in first-time funds, not first-time investors.”
The track record should include all deals and should be totally transparent. If there’s a blemish on the record, the GP should not hide it but rather address it so the GP can control its message about it.
Have LP-Friendly Fund Terms
LP-friendly fund terms can ease an LP’s concerns about this sensitive topic. For emerging managers, the fund should have a reasonable management fee that steps down over time, meaningful GP commitment, 20% carry on a whole-fund basis, an 8% preferred return hurdle, and other terms that will create strong alignment of interests among the GP and the LPs.
The fund-terms page of the presentation can make a strong statement about how the LPs will be treated.
Research the LP Before the Meeting
The meeting’s main goals are to establish a working relationship with the LP and for the LP to take the next step in what is often a many months-long investment process.
Establishing a personal connection with the meeting participants is really helpful. If meeting participants attended the same university or business school, worked at the same firm, or grew up in the same neighborhood, the connection this brings can be very beneficial. Researching the participants on their websites or on LinkedIn can help to identify common ground.
At the Meeting
Be Courteous
Being courteous should seem obvious, but it is surprising how many times an inconsiderate act can ruin a meeting.
The GP should show up on time and ready to go. Initial meetings usually last an hour. Usually the first five minutes or so are spent on introductions and getting settled. GPs should plan for the presentation to take about 30 minutes, leaving time at the end for questions and answers and next steps.
The GP should also be flexible in the meetings. Sometimes, LPs will ask questions during the presentation and other LPs may wait to ask questions at the end. This is the LP’s meeting, and the LP may have specific items they want to discuss.
GPs are well advised to give the meeting their undivided attention: They should not take calls, check emails, or text during the meeting.
Several years ago I had a meeting in which one of the GPs took a call during the presentation. Not only was it highly disruptive, but it sent me a message about how much the GP valued the meeting.
GPs should always treat everyone in the meeting with respect, from the most senior people to the most junior people.
Give a Good Presentation
Often, GPs are so excited about their fund that they talk too fast and use terminology and acronyms that the LP may not understand. GPs should make sure the LP is following the conversation.
If two members of the GP are present, each should speak. LPs look for body language, respect, fear, intimidation – signs that the firm may be autocratic instead of a true team. Make sure everyone in the room talks.
Focus on the Deals
GPs should talk about their deals -- the successful as well as the unsuccessful. Talking about failures provides an opportunity to discuss lessons learned. Also, LPs will usually find out about failures during due diligence, so GPs that discuss their failures are also able to craft the stories about why they failed.
Take Notes
While LPs routinely take notes, the GP should also take notes, specifically on the questions the LPs ask. After the meeting, the GP can review these questions, practice answers and refine their presentations if necessary.
Don’t Expect an Answer at the Meeting
The investment process for most LPs has many steps. The GP should not expect any kind of commitment at the initial meeting. What the GP can ask about is the LPs’ investment process and the next steps in that process.
After the Meeting
GP Debrief
After the meeting with the LP, the GP should debrief the meeting. What seemed to resonate with the LP? What were the questions the LP asked, and how were they handled by the GP? A GP can learn something from each LP meeting, and the GP’s message should be honed and refined as more meetings are held.
Follow Up
LPs are likely reviewing many different funds at once, and poor GP follow-up can derail an LP commitment.
GPs should provide LPs with periodic updates on deals that have been done, liquidity events, valuation events, and team changes. GPs should also provide LPs with updates on the fundraising.
Finally, many smaller LPs are second-closing LPs – meaning they will wait until a first closing has been held before making a decision. Providing an update on an initial close can add momentum to an LP’s process.
Be Patient Yet Persistent
LPs are often understaffed and are evaluating many different opportunities at once. GPs must be patient, as the investment process will likely take many meetings and calls, lots of document requests and lots of time.
GPs should be politely persistent, because even though an LP may not have been in touch for a few weeks, it may mean only that the LP is very busy and not that the GP has been forgotten.
However, the GP should not be overly aggressive. If an LP says no, the GP should not be argumentative (yes, it’s happened) and should not try to change the LP’s mind.
Be Prepared for Rejection
Institutional LPs see many, many funds each year, and will invest only in a very few of these funds. With thousands of funds in the market, GPs should expect lots of rejection.
Private Equity Is a Relationship Business
Private equity is all about people. A “no” from an LP for this fund may not be a “no” for the next fund. Because of this, GPs are well advised to stay in touch with LPs, providing them with updates on the fund’s performance. And remember, fundraising for the next fund starts the day after the current fund has its final closing.
Footnotes:
[1] MacArthur, Hugh, et al., “Private Equity Fund-Raising Has Been Good – Maybe Too Good?” Forbes.com March 28, 2018 (3,318 fund on the road at the start of 2018, according to Preqin). Retrieved from: https://www.forbes.com/sites/baininsights/2018/03/28/private-equity-fund-raising-has-been-good-maybe-too-good/#883f28e3c634. Hammoud, Tawfik, et al., “Private Equity Is Not But Not Overheating.” The Boston Consulting Group April 25, 2018 (2.296 private equity funds in the market in January 2018). Retrieved from: https://www.bcg.com/publications/2018/private-equity-hot-but-not-overheating.aspx
[2] https://ilpa.org/due-diligence-questionnaire/
[1] MacArthur, Hugh, et al., “Private Equity Fund-Raising Has Been Good – Maybe Too Good?” Forbes.com March 28, 2018 (3,318 fund on the road at the start of 2018, according to Preqin). Retrieved from: https://www.forbes.com/sites/baininsights/2018/03/28/private-equity-fund-raising-has-been-good-maybe-too-good/#883f28e3c634. Hammoud, Tawfik, et al., “Private Equity Is Not But Not Overheating.” The Boston Consulting Group April 25, 2018 (2.296 private equity funds in the market in January 2018). Retrieved from: https://www.bcg.com/publications/2018/private-equity-hot-but-not-overheating.aspx
[2] https://ilpa.org/due-diligence-questionnaire/
