Saturday, July 29, 2006

Wisen up, guys...!

I checked out a few Institutional Limited Partners and prominent Angel investors for their assessment of fundraising competence of GPs / VCs. It threw up some interesting anecdotes which could be best avoided by prospective GPs and resource raisers. Give it a good read before you take the dive.

If you're going to try to raise money from Limited Partners (LP) / Angels , make sure you know who your competitors are. My experience says LPs are often amazed to hear managers say, "We don't have any competition," or "We don't know any other firms that do what we do." Even if you're bluffing, the message you're sending is that you're unaware of your own industry.
And don't bother trying to convince Investors that your deal flow is "proprietary." He's heard that one too many times.

I asked these LPs to give us some examples of where fund managers typically make mistakes in their presentations. "Most people are generally well prepared for their meetings with us," they say. "One of the times when things fall apart during presentations is when people insist on sticking to a fixed script for a presentation." For example, often LP ( institutional ) team member may want to drill down into a point made on the third page of a PowerPoint presentation, but the fund manager refuses to deviate from the PowerPoint. A related mistake is coming in and expecting to do all the talking. "We tell people that we want a dialogue when we meet with them- that we've read the PPM already," they say.

Another area where I see a breakdown is analytics. "Either they're untruthful or they're in a gray area where the presentation is being made in a disingenuous fashion," he says. For example, a manager might say that the track record data being presented reflects all of his firm's deals, but then "we look at all of a firm's cash flows and we find 15 deals that were not in the track record," one LP said. "When we ask why those deals weren't in the pitch or PPM, we're told it's because those failed deals are not part of the direction of the firm in the future. It's a classic mistake for a GP to think that the LP is not smart enough to ask for the details or to think that an LP won't ask for all of a GPs numbers after a presentation."

The key to a successful fundraise meeting is not necessarily the pitch. "We don't back the best pitch," LPs note. "[We back] people who make the best investments. It's our job to look beyond the well-designed PPM and the gifted speakers."