KAP’s insights on private equity investor relations and fundraising

What is pre-marketing and why is it so important for a successful fundraise?

In a recent conversation, a successful fund manager lamented feeling like he never got a break from marketing. Our response? “You’re doing something right.” In one way or another, GPs are constantly working to build their base of capital partners. We think of your efforts as part of a recurring cycle consisting of three distinct phases: 1) pre-marketing; 2) fundraising; and 3) maintaining and building relationships when you’re not specifically focused on your next vehicle. With a number of our clients gearing up for raises in 2018, we’ve been talking quite a bit about the importance of pre-marketing.

Pre-marketing involves meeting with investors once you’ve defined and articulated the vision and strategy for your next offering but before you’re officially ready to accept commitments. We recommend spending three to six months pre-marketing before a formal launch. Among its virtues, pre-marketing:

  1. Provides a sense of market interest. Pre-marketing meetings help managers gauge market appetite for their team, strategy, and offering. LPs’ preliminary enthusiasm levels can help you define a realistic target fund size and inform first and final closing timing. Negative initial feedback may provide you with an opportunity to a) tweak your offering to better meet market demand, or b) consider alternative vehicle structures that may help you meet your goals.

  2. Informs a more accurate fundraising plan. During pre-marketing conversations, individual LPs – particularly those with whom you have existing ties – are likely to share insights regarding their potential commitment sizes and commitment timing. Armed with this knowledge, managers can develop more thoughtful capital raise roadmaps, tier out prospects, and even begin organizing travel plans. Early conversations can also help identify any commitment holes, such as those that may arise from loss of a large existing investor, while you have ample time to strategize about how to plug the gap.

  3. Helps refine marketing materials. In preliminary meetings, LPs may offer suggestions on ways to fine tune your pitch book and other collateral. Indirect feedback may prove valuable too. Based on the questions LPs raise during meetings, for instance, you may identify topics worth covering in greater detail. Content they consistently gloss over may be worth cutting. Once you officially launch, you’ll want to limit significant changes to your collateral, so take your materials for their test drive during pre-marketing.

  4. Builds momentum and buzz. Early momentum is key to an efficient fundraise. Many investors, especially new prospects, like to know who has already been soft circled or closed before committing to a new fund. Having a quorum of investors soft circled prior to launching a fundraise enables an earlier first close, which provides a sense of urgency for other investors who may be motivated to pursue what they perceive as an in-demand investment opportunity.

  5. Evens out travel. More travel during the pre-marketing period should reduce the number of roadshow meetings required during the fundraise. While the total number of meetings may not drop, spreading out the travel enables the firm’s principals to maintain saner schedules during the raise so that they can continue to focus on investing and managing opportunities and investments.