Checklist: 5 steps for successful fundraising in Private Equity

4 minutes
September 13, 2022
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The benefits of operating in the private industry are obvious: More control over company decisions, fewer regulations, and less pressure to make short-term decisions. As a result, more investors are shifting their investments into private assets.

As a PE Firm, you'll be expected to show not only a great investment track record but also that you have a clear and concise fundraising strategy. This is where having a Private Equity Fundraising Checklist comes in handy - it can help ensure that you've considered all the key points and avoid any costly mistakes.

Here are five essential steps for successfully fundraising in Private Equity:

1. Avoiding common mistakes

If you're looking to raise money from private equity investors, there are four main mistakes that fund managers make during fundraising. 

  • Underestimating or not understanding the process that Limited Partners go through when making decisions, which can often be very time-consuming. It's crucial to have realistic expectations on how long it will take for a deal to close.
  • Being overly optimistic and assuming that LPs will commit based on positive feedback. It's not hard to get an LPs attention but getting them to commit capital is quite difficult.
  • Under-projecting associated costs throughout the fundraising process. If you go over budget or run out of funds midway through, it could jeopardize the campaign.
  • Going into fundraising with unresolved internal issues or not properly setting up arrangements, causing team members to drop out halfway through the process.

2. Create a compelling investment strategy

Before you begin contacting potential investors, you should consider creating a value proposition that entices Limited Partners to look at you as a valuable option for their money. Focus on what distinguishes you (Differentiators) and why you're the best at what you do (Key advantage). You should think about other variables, such as funding, liquidity, and capital risks, in addition to market/economic uncertainty.

When considering whether to invest in a company, one of the primary factors that investors evaluate is proof of latent demand. This is essentially a demand pipeline that has yet to be tapped into and that could be unlocked if the company had more funding to scale up its supply or services. The more you can frame your request for funding in these terms, the more of a sure bet it looks like for the investor and the easier their decision becomes. 

3. Manage the fundraising process efficiently and effectively

The fundraising process should also have great functionality. For example, will the reports be available to investors on-demand? It's important to have a streamlined process between the investment manager and investors because it builds trust and creates long-term success. 

Startups and private equity/venture firms need to be able to use accounting, reports, real-time performance metrics, and other compliance tools in order to connect with potential investors globally in a way that allows them to easily keep track of their progress. Our Investor Relations Professional was developed as a response to this demand, providing software catering specifically towards these needs so that fundraising would be a much less daunting task.

4. Verifying a proven track record

In a winner-take-most market, it is essential to have data available that supports your claims. Equally important is to explain the growth levers and how they can be profitably scaled, clearly communicating the team's experience and performance. This data can be in the form of case studies, third-party reports, or even specific client logos that show who you’ve worked with successfully in the past.

If you're starting from scratch, focus on creating a team that investors will feel good about supporting. Include resumes and talk about any experience they may have that is related to your company. The more ready you are before approaching firms for money, the higher the likelihood that top private equity companies will want to invest in what you're doing.

5. Maintain communication throughout the fundraising process

From an investor’s perspective, hearing that a business is continually improving is the most exciting news. To create this feeling of excitement and acceleration, find the minimum viable excitement in a future vision and then exceed those expectations consistently. This will get people--investors and employees included--more excited about your company and your project.

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