Whether you are raising your first or fifth fund, your Limited Partners (LPs) are a determining factor for the fund’s launch. Finding these LPs and fundraising from them can be a daunting task. Fund managers are asking for a lot when fundraising. From introductions to meetings to investments, the process of securing capital can feel transactional. In order to properly leverage their relationships, fund managers must put thought into their LP relationships.
It is the strong relationships built over years of effort that allow fund managers to secure commitments.
This guide breaks down the most concrete and actionable practices you should be taking to build strong LP relationships.
Track Every Conversation You Have
Copious notes are your friend when networking. Whether you are talking to angel investors, a family office, or an institutional investor, note down everything you know about how they function, evaluate opportunities, and define success. Note what categories they would fit into as an LP and their level of interest so that you know when to approach them for your fund. Most importantly, learn what they are looking for. This will give you confidence in what you need to include in your pitch.
Put this into practice years before you are actively fundraising. This lets you practice soft selling your fund without the pressure of a pitch. Even when not actively fundraising, you can get a sense of who would be interested in investing and start collecting feedback on your approach and thesis.
Additionally, spend time with potential LPs who you are not sure are a fit. Building relationships takes time and consistency. Your needs and their needs may change over time, so continually update your notes to know who aligns best as an LP when it comes time to fundraise.
Rethink Pitching as Sharing an Opportunity.
Once fundraising, a common worry for fund managers is how transactional the fundraising process is. As a fund manager, it may seem like you are always asking for things. If you are not asking for an investment, you are asking for an intro. And if not for an introduction, then advice or feedback. Fund managers must put themselves and their thesis out there, hoping others will buy in. This can make their pitch sound uncomfortable, unconfident, and unconvincing.
The very idea of pitching can imply a power imbalance. You may feel like you are presenting to an LP hoping to gain their support. However, your pitch and relationship will change when you reframe the interaction.
Rather than pitching, think of your meeting as sharing an exciting (and lucrative) opportunity. Both sides have much to gain from this potential deal if it is the right fit. This mindset helps you remember the value you bring and makes the interaction more of a collaboration than a sales meeting.
Strong relationships should feel like both sides are of equal standing. Rethinking your pitch as an opportunity will eliminate the power imbalance and add authenticity to your relationship.
Be Ready to Show, Not Tell
A lot of potential investors can talk about what they can do. They are even better when they can paint an inspiring picture of everything they will accomplish. However, the best proof for an LP is through showing, not telling.
When you are actively fundraising, have as many concrete materials as possible. Beyond the vision of the fund and the thesis, consider what you can bring that demonstrates the work you have put in. Overprepare for these meetings to show that you are farther along in your work than they would expect. This may include laying out your portfolio methodology or sharing your deal pipeline. Pull in past investments as proof of your track record.
A quick checklist of materials beyond the pitch deck:
- Team Bios
- Fund Investment Strategy
- Investment Memo
- Fund Model
- Track Record
- Portfolio Makeup
- Legal Documents
A flawless pitch is excellent, but a fund that looks ready to deploy capital is all the more convincing. The more prepared you are, the more you will stand out. This is especially true for any first-time fund managers looking to appear more experienced than they are.
Prepared materials lock in trust with your potential LPs and give them confidence when connecting you with other LPs.
Invest in Providers to Look Professional
Speaking of over-preparing, put in the time to make your operations feel institutional. Professionalism helps you continuously impress your LPs, keep the transactional work efficient, and can even allow you to focus on the “fun” interactions that build the relationship. Providers, technology, and strong materials all contribute to this.
Your accounting, legal services, back office, and fund admin providers reflect your fund’s brand. Their professionalism becomes yours. Make sure that they value client relationships.
On the flip side, providers act as an invaluable buffer between the transactional operations of the fund and the integrity of your relationships with your LPs. The providers will send transactional messages asking for signatures, wires, and proof of identification. They handle these requests with the LPs, so you do not have to communicate such operational messages. This preserves the intimacy of your LP relationship. Instead, you can focus on building the relationship through “fun” communications that they will enjoy, such as portfolio updates.
Much like your providers, your technology contributes to a seamless investing experience. You want your LP’s experience to be efficient and effortless, showing that you value their time.
Consider platforms that help with LP onboarding, collecting signatures, and deploying their capital. If your LPs walk away from the investment with a good impression of the process, this will carry onto their image of you and help with future fundraises.
Fund managers turn to platforms such as Sydecar for fund administration to add this layer of legitimacy. Through onboarding links, integrated compliance, and funding that takes seconds, LPs can complete their investment with little thought, saving hundreds of hours of emails to collect information.
While building LP relationships can seem like a soft skill, there are concrete steps every fund manager should be taking to maximize the impression that they make.
From the pre-fundraising process to closing the fundraise, a fund manager can build operations that strengthen their relationships with their LPs. Fund managers should spend time building these relationships because, beyond their immediate plans for their fund, these relationships will pay dividends through LP intros, deal flow, recruitment, and many unexpected opportunities. You will never regret putting the effort into building a strong relationship with your LPs.
This article was written by Samantha Loui from Sydecar.io