InsightsKAP’s insights on private equity investor relations and fundraising
The Investor Said No … Now What?
Receiving a decline from an investor can be a disappointing experience. However, many successful salespeople will tell you that the sale truly begins when a prospect says “no.”
What are some things that a real estate or private equity general partner (“GP”) should do when they receive a decline from a prospective investor (“LP”)?
1. Stay positive. Fundraising is about building long term relationships. Do not let short term setbacks keep you from your broader capital raising endeavors. Learn from the declines, and focus on the investors that are ready to invest with you today.
2. Solicit feedback. Do not be afraid to ask for an investor’s rationale behind the decline so that you can understand their objections and concerns. It is important to accept all feedback graciously and to truly listen to investors.
3. Educate. Investors are regularly inundated with offering memorandums and marketing materials, as well as by cold calls from GPs courting fund commitments. With limited staff to sort through the plethora of fundraising materials an LP might receive, it can often be difficult for investors to always flag high quality fund offerings that fit their strategy. Quite often, it can be easier for an investor to say no versus trying to understand a new strategy. If your firm invests in a niche or complex strategy, consider creating a one-page overview or offering a brief call to clarify and explain your firm strategy.
4. Stay in touch. A “no” response may often only mean “no” for now. Take the time to address an investor’s concerns. For example, if an investor declines a fund due to a lack of realizations, be prepared to reach out to that LP every time your fund has a new realization with a one-page disposition summary. In addition, it is important to remember that investor appetite for specific fund strategies can change quarter to quarter (or even more frequently). Offering quarterly update calls or sending quarterly emails to investors who have declined is worth considering. As a word of caution, be respectful of an investor’s time and reach out when your firm actually has a meaningful update to share (i.e., realizations, recapitalizations, new investments, senior team additions/promotions).
5. Rethink your roadshow team. Investment partners should be present at all meetings. While IR professionals can be an excellent addition to investor meetings through providing critical pre-meeting analysis and organization, LPs want to hear from the professionals who are sourcing and managing the deals on a day-to-day basis. Two investment partners and one IR professional at a maximum in meetings is generally a good rule of thumb. If your firm has more than two investment partners, consider testing out different combinations of presenters to see which combination is the strongest. It may also be worth considering hiring a presentation coach to help your firm put its best foot forward.
Remember, you are seeking investment partners with whom to grow your business over the long term. It may take many “no” responses before getting to the right base of “yes” investors.