Raising Capital for a Fund
Raising Capital for a Fund
Using Marketing Strategies to Raise Capital
When people think of capital raising they think of it as unique from the general business areas of sales and marketing, however, raising capital is essentially selling a product (the fund) to investors. Therefore some tested marketing and sales principles can be applied to raising capital for a private equity fund. Yet by the same token, some strategies do not transfer to capital raising.
Think of a sports car that has a well-produced commercial with more advertising flash than information on the product. Consumers are excited by the advertising and go out and buy the car. For one month it is a great car but then the consumer realizes that it is really inefficient and costs more to maintain than the initial cost of the car. The marketing campaign for the car was able to generate buyers and the car company makes a lot of profit from this. Although that car was defective, the car company can still produce many others and consumers will probably not remember that faulty sports car. This is not the case in private equity.
First, there are less investors in private equity funds than there are car buyers. Therefore, if your fund fails to satisfy its investors, word will get around and it will be difficult to find new investors. Secondly, investors are committing large portions of their personal wealth or, in institutional investors, the wealth of others. They will usually pay more attention and do greater due diligence on the fund than a buyer of a product would. Thus, a slick marketing campaign will only get investors interested but it does not ensure that they will invest in the fund. There needs to be substance behind your fund marketing because investors will be asking a lot of due diligence questions to measure whether your fund is capable of producing returns.
Unlike products such as a car or a computer, a fund is expected to succeed its entire life, which could be as long as 10-12 years. Most commodities–except maybe wine and baseball cards–are expected to lose value each year but funds are expected to consistently satisfy investors expectations and hopefully improve upon these expectations annually. Additionally, these limited partners are not casual investors, rather they are sophisticated accredited investors who will probably see through an empty marketing strategy.
Now that we’ve seen how general sales and marketing does not always transfer to private equity capital raising, here are some ways that you can employ traditional strategies in your fund marketing campaign.
- Persistence: Every good sales man knows that it takes more than a great product to achieve success. Investors may resist even the most qualified fund managers because they are uncertain about the market or just need to be prodded a bit. Fund marketing requires persistence so keep track of potential investors, even if you cannot get them to commit to this fund perhaps they will be interested in the next.
- Keep a Large List of Potential Clients: I know fund marketers who keep information on hundreds of potential, current and former clients. These marketers realize that having a broad reach in the industry is essential to raising capital. It’s not enough just to simply have the contact details for these investors, you need to build a relationship with each one. I would suggest scheduling at least a quarterly call to your most important sources for capital and at least annually contacting the less frequent investors. This keeps you in their mind and will help you know as soon as they are looking to invest in a fund.
- Everyone Should Know Some Marketing Strategy: Even if you are the manager of your fund, you should still have at least a basic knowledge of marketing. Your marketing and sales team may be the ones who attract the clients but ultimately management will be the ones responsible for closing the deal and maintaining investor confidence. If you do not have the people skills to talk with your investors or the marketing know-how to generate interest in your funds then you will have trouble raising capital and keeping whatever investors you are able to attract.
- Read About Marketing: You may be a seasoned marketer with a successful strategy but you could always improve your current methods. Reading free articles on this blog or others about marketing and sales will be helpful in keeping up with new trends and ideas. Another great refresher is Jeffrey Gitomer’s collection of helpful and concise marketing books such as the Sales Bible and Little Red Book of Selling.
I hope this has illuminated some of the differences and parallels between general marketing techniques and capital raising strategies.
If you want to learn more read private equity fund marketing.
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