As a GP at a venture capital or private equity fund, you need access to capital, and limited partners (LPs) are the investors who can invest in your fund. Traditionally, raising money from LPs has been a very opaque process, and there is little information available for emerging GPs looking to raise their first funds.
Compared to raising venture funding for a startup, raising a private equity or venture capital fund can be more time-consuming and challenging, especially for emerging GPs who have a limited track record or lack a vast professional network. Nonetheless, raising a fund has many parallels to raising capital as a founder.
Most emerging general partners raise funds from LPs by leveraging their existing networks supplemented by targeted cold outreach campaigns. This can be an arduous task, especially since finding the contact information of LPs that invest in emerging GPs takes work. But cold outreach is 100% worth the effort since it can yield favorable results and help you expand your network within the industry.
Cold outreach to potential LPs might be more complicated than traditional cold outreach to other audiences since LPs or other investors who invest in private capital generally do not have websites and are harder to come across than a venture capital firm looking to invest in startups.
When raising a fund, feedback loops are much longer than in startups, where a founder can quickly show his investors growth metrics like the number of users, revenue, etc. For a GP, it can take years to measure their progress since metrics such as IRR and Distribution Paid-In Capital are not instantly available.
Here are our tips on how to get started with raising a fund.
Fundraising From Limited Partners- Getting Started
Before beginning the fundraising process, you must articulate your investment strategy and thesis and ideally acquire experience as a general partner in PE or VC or as an angel investor. Crafting your investment strategy and creating your track record is beyond this article’s scope, but articulating your thesis effectively and having previous experience in the industry will increase your chances of landing meetings with potential LPs and other institutional investors.
In the same way, venture capital or PE firms are looking for portfolio companies in a specific segment, industry, or founder background, LPs are looking for fund managers with a unique advantage in sourcing, evaluating, and investing in companies that can deliver their desired level of returns. LPs are also interested in a manager’s motivations, how they make investment decisions and thoughtfulness in their portfolio decisions.
In general, LPs invest in committed fund managers with whom they’ve built longstanding relationships, demonstrated success in investing either through a previous fund or as angel investors, and have specific domain expertise that can add value to their portfolio companies. Differentiation matters, and you must communicate your fund’s value to potential LPs.
Finding Limited Partners
If you are raising a small fund, it’s best to stick with High Net Worth Individuals (HNW) or family offices since these investors generally make decisions faster than other institutional investors such as pension funds. The challenge becomes finding these potential LPs if they are not part of your network.
Introductions are the best way to get in front of HNW individuals or family offices. Relationship Intelligence platforms like 4Degrees have been designed to help GPs find the best way to connect with potential LPs. For example, you can use 4Degrees to see who in your network is connected with LPs from New York that invest in a specific asset class. This way, you will find a warm introduction and increase the odds of connecting with said LP.
LPS can be elusive, so targeted cold outreach is a very effective strategy to supplement your outreach. To help you get started, we’ve gathered a dataset of investors that invest in the private markets, including venture capital, private equity, and real estate, among other asset classes.
We have included the names and contact information of well-known pension funds, university endowments, family offices, and other investment management firms that have included venture capital and private equity in their investment allocations.
Messaging Potential LPs
The best way to use our dataset is to research each limited partner to determine if they are a potential LP candidate for your specific fund. For example, if you are a first-time manager raising a small VC fund of $10m investing in early-stage companies, you would spend your time reaching out to HNW individuals or family offices instead of government pensions.
Once you have determined the type of LPs you are targeting, it’s a good idea to use a platform such as Pitchbook to conduct more detailed research before reaching out via email.
When writing your initial outreach message, keep it concise and to the point. Ensure that your investment thesis can be summarized in one sentence, and include information about your fund to see if your strategy aligns with the potential investor. It is also important to put some thought behind the email’s subject line since you want to increase the odds of the LP opening your email.
To raise your fund in less time, we recommend you can help you find warm introductions while also using our free LP database for your cold outreach!