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Heard on the private equity fundraising trail. Part I

Following up on my posts “Things GPs say, probably believe, and what it means to LPsPart I and Part II - here is the opposite view – standard LP, statements, questions, and “feedback”.


During and following a pitch it can be hard for a GP to interpret what an LP actually thinks – at times maybe also because the GP succumbs to “canned pitching”, see prior posts.


Here is Part I of a few of my favourites, and maybe a bit of food for thought for GPs meeting LPs.


A question most GPs probably expect, and maybe an LP view of GPs


We don’t invest in “geography” / “stage” / “strategy”

These are obviously hygiene factors that should have been cleared up in advance of any meeting. Nonetheless, many GPs frustratingly find themselves pitching a geography / stage / strategy that an LP won’t or can’t invest in and often for reasons that can only be poorly rationalized.


Having now started the meeting, this often leads to a GP trying to “fit” their geography / stage / strategy into the LPs “cookie cutter”. Trying to convince most LPs that their ABC Ventures is not really a venture fund, but a growth fund only rarely works.


At best, this is a meeting that may lead to something in the future, at worst, a complete waste of time. To gain something from the meeting and build the relationship the GP can advantageously ask for the LP’s thoughts. The LP will very likely share and likely also more honestly than those who are interested. Thus genuine and very valuable feedback for any GP.


We would need to have an LPAC seat

Often a standard question, or simply a condition, and for many LPs seemingly a motivation to invest in the first place – not least the well meaning Development Financial Institutions and their peers.


Most cannot explain why or what they would do with it. Or why their USD 10m in the USD 3bn fund should get them a seat at the table. Often it is a question of their own stature and ego.


GPs would do well by accounting for this motivation, while still balancing their LPAC.


ESG / Impact / SRI is very important to us

A standard phrase from most European LPs and one which most GPs are getting used to and adapting for. Oddly for many, not least the larger ones, and somewhat confusingly for GPs this seemingly non-negotiable statement is in fact a “tick the box exercise”.


If a GP is a UN PRI signatory and considers ESG as part of the investment process the “job” is done for many LPs. They can report back positively that the GP takes this very seriously and notch up a score on ESG. Still a long way to go, this is fortunately getting better.


GPs can use this in a couple of ways. They can genuinely push to the forefront of ESG / SRI and demonstrate how and what they do. Or, a bit more cynical, they can facilitate the box ticking – though, given the way the world is moving, this is likely to a rather shortsighted fundraising strategy.

 

Following up with Part II of this in my next post.


In the meantime, what is your favourite LP statement, question, or feedback? And, full disclosure, being an LP myself, maybe a few of the GPs I have met have some observations!


Stay illiquid!


Kasper


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