Alan Pardee quoted in Private Funds Management
Two rules for cold calling LPs: One… don’t. Two, if there’s no other choice, make sure it involves an educated, succinct pitch that makes it easy for an LP to respond
For firms that can’t afford a placement agent or haven’t hired one yet, reaching out to an investor for the first time can seem daunting. LPs are inundated by such requests already, all the while trying to manage their current commitments.
Of course hiring a placement agent is preferable, with their network and expertise, but if that’s not possible, agents still suggest avoiding a true cold call. Instead, firms should tap their current network to see if someone could make the introduction. Or they can attend conferences, speak on panels and introduce themselves in person. If a cold call is absolutely unavoidable, it should be done after researching the investor, perfecting a brief, compelling pitch, and making the “ask” as specific as possible.
Yet, cold calling remains a long shot, which is why placement agents strenuously counsel against it. “Reach out to LPs the way you reach out to companies you’re taking an interest in,” says Alan Pardee of Mercury Capital Advisors. “Plumb your network for anyone who might know them. A friendly LP? Any other relationships? Is there some one who can make the introduction on your behalf?” Agents note that most people underestimate the connections within their current network.
“Go on LinkedIn, see if you have any common contacts,” says Sunaina Sinha of Cebile Capital. Agents will occasionally do one off favors for a fee, and sometimes as simply a goodwill gesture.
In lieu of a personal reference, conferences can be a great way to make a connection. Speaking on a panel is best, but even without that role, conferences are places where people are more comfortable being approached for the first time.
But this remains a form of a cold call, and a GP would do well to craft a brief, compelling verbal pitch to explain themselves. “Ideally you’d have a one-minute, five-minute and 60-minute version of this pitch,” says Sinha. But both agents and LPs warn against sounding too rehearsed. This first impression still needs to feel personal, not automated.
In this day and age, the most common cold call is that initial email, which should sum up the value proposition in a few key points. First and foremost, the pitch should mention the track record. “Say this up front,” says Sinha. “GPs are always burying this stat.” Second, explain the team’s tenure together and experience, then any notable LPs along with the fund’s target size. Only then does this pitch define its strategy, hopefully in terms of what a fund may be doing differently than its peers. Finally, the pitch should discuss the deal pipeline. What are the opportunities? What are the first few deals? Agents suggest one of the best ways to attract new LPs is with co-investment opportunities.
Agents stress the most frequent mistake in this initial email is not making a specific request, such as when to meet, or what that LP’s next step should be. Moreover, it’s more effective to suggest a specific action, such as a time to meet while the GP is in town. Make the request actionable, because if left open-ended, there’s less of a chance the LP will respond. It should be at the top of the email, and reiterated at the end of it.
Sometimes GPs are wary of being specific, for fear of rejection. “Be clear. Don’t be afraid to ask direct questions, such as ‘Are you interested in investing in the life sciences sector this year?’” says Sinha. “Don’t be afraid of a no. It’s better than a long-earned maybe.”
And cold callers should give the LP at least a week before following up with a phone call. But GPs shouldn’t get their hopes up, as more often than not, such overtures are ignored. Given the amount of work and the odds, placement agents have little trouble making their own pitches hard to resist. – By: Rob Kotecki