What are the key factors GPs need to look out for when pitching to LPs? Paul Farrow, Partner at Benjamin Ball Associates is interviewed by Jen Dowd of Backbay Communications as they discuss why precise communication is key in the private equity world when it comes to fundraising.
Watch the full video or read the transcript below.
The way you pitch and market a fund is critical when it comes to getting capital from LPs. How do you go about beginning this process in advance of fundraising?
It all starts with messaging – and this is where a lot of people go wrong. Before you put a single word on a PowerPoint presentation slide or fix up a meeting with a potential investor, you want to be really clear about who you are, what you do, and what makes you different.
The way that we approach this with our clients is to run what we call a cracker session – where we ‘crack’ the messaging problem. The idea is that we get together all the relevant people from the client company and look at what should be the powerful takeaway message. along with three or four other main messages, we identify the proof that will back these messages up and put them through a rigorous testing process. At the end of the session, it gives people a hard version of the messaging that they can then put to work.
The questions that investors will be asking about you: how credible are you, how memorable are you, and how likable are you.
What would be the key points that you would instill in your clients to help make their pitch meetings successful?
The first thing is to understand your prospect. Again, that's a mistake and a lot of people make – as they dive into assuming that the person they are talking to want certain things. It’s much better to find out what they really want and then address those concerns. In that sense, addressing the set of concerns is actually the second major thing you need to do. The third thing is to make your answers as clear and as simple as possible. If you're meeting, as some LPS are, three or four GPs in a week, or maybe sometimes even in a day, you will not invest in anything you don't understand. So, keep it simple.
Do you find that you have to alter your strategy based on the type of fund being raised?
The detail is different to some extent, but I think that the three fundamental issues that you have to address are actually the same for any sort of funds. You can really sum it up in three questions and those are the questions that investors will be asking about you: how credible are you, how memorable are you, and how likable are you.
Credible means ‘does the story stack up’. Have you done this before? And if you haven't in quite this form, why should I believe you can? The second one is memorable and of all the people you meet, for example in the credit world where often distractions seem very similar, what makes you stand out. The third one is likability. A LP once said to me: “I won't invest with anybody just because I like them, but on the other hand I definitely won't invest with anybody I don't like.” And if credibility and memorability are the same, the reality is that likability is what wins you the deal. So, don't underestimate likability.
What is the most common mistake you see that GPs make when they're pitching?
I think the most common mistake is, in my opinion, the fatal phrase “I'm going to take you through a presentation”. I don't think anybody's heart was ever gladdened by somebody saying that. What LPs want is a dialogue with people who can help them to sort out a problem, which is how to invest their money in the most profitable way. So, a part of that is to find out what it is that they really want, address their concerns, and help them by doing that. That's really a lot of the value that a GP could offer to an LP.
How do you prepare the GPs ahead of meeting the LPs?
One of the things that we do is to roleplay meetings with GPs before they go on the road. Two or three members of the team will be LPs and we get the GPs to come in and pitch to us exactly as they would try to pitch to an LP. We video it and watch it back together to work out what we can do to improve. Often that's things like having a powerful start, going back to the simple messages, listening, questions, and summing up with a strong ending. By the time they actually go and meet real LPs, they've really road tested the messaging, constructed the presentation and their own ability to deliver it. It is really important to come over as a team because that's a major reason why LPs don't invest with GPs – because they don't see a team.
What's the lead time like? How long do you like clients to come to you before they go to market with a fund?
The easy answer is as early as possible, but I think an honest answer would be while there's still time to work on the messaging and the structure. People who have not had fruitful fundraising pitches do come back to us asking for advice on how they should progress, and in these situations we can still come in and look at how to re-tweak the presentation etc. However, the famous comment “you only get one opportunity to make the first Impression” is definitely true for investors. You really want to be confident about your presentation, your approach, what's special about you and what's different about you, before sit in front of an LP.