How to Raise Investment Capital More Effectively. Five Principles That You Cannot Ignore…
So, you successfully raised capital for your first fund or first round. Congratulations! It was tough. My guess is that it probably took a lot longer than you expected. You were probably turned down way more than you care to admit (and that stings). And, you are not particularly looking forward to having to do it again.
However, before you know it, the time to start raising capital will be here again. If you are an emerging private equity firm, venture capital fund, or growth stage company, the move from the first to the second raise is a big one. We’ve seen many approaches to this transition (some more successful than others) and have found the common threads that help you achieve the best outcomes.
Listen, we get it. Fundraising is tough. Real tough! I really don’t think anyone likes doing it. But if you effectively follow these five principles, you can make the process a whole lot faster…. Get after it! You can do this!!
First Principle: Seek First to Listen — Understand the Needs of Your Audience
Most likely in Fund I, your LP base consisted primarily of High Net Worth (HNW) investors. Moving to Fund II, the mix of LP’s is going to change. Your LP base will now become a mix of High Net Worth investors, as well as larger institutional investors. Understand that these two investor types are quite different and have different needs.
HNW investors tend to lean more heavily on issues around personal trust. Institutional investors lean more in the direction of domain expertise and proven success. You must adjust your message accordingly.
Most High Net Worth investors want to understand your credibility. Essentially, they want to know if they can trust you. However, these investors are not known for performing much due diligence (if any in some cases). This type of investor will lean heavily on the power of their connections and their network to confirm your credibility.
Institutional investors behave very differently. Performing extensive due diligence is what they do, and most tend to do it well. Ensure that your fund has the proper infrastructure (people, processes, and…
