Creating a fundraising strategy for a boutique PE fund involved more than just a strong marketing deck, fund strategy, and deal flow. The following approaches proved most valuable:
Create FOMO with Marquee Early-Investors
Establishing trust as a new fund is difficult. However, once popular investors or prominent business figures committed, it generated significant "Fear of Missing Out" (FOMO). Ideal initial investors fell into two categories:
a. Business leaders in the same industry or value chain as the fund. For instance, as a real estate-themed fund, we targeted leading real estate developers. Such investors provided capital as well as strategic alignment, industry validation, and access to their networks for deals or future LPs.
b. High-profile investors who frequently appeared on television. Their public profile quickly established credibility and success, proving particularly effective in attracting a broader base of LPs, including retail clients who rely on brand recognition for trust.
Embrace Smaller LP Commitments and Offer Co-Investment Rights
As a new fund, securing large commitments, even from the largest of the family offices, was not expected due to a lack of established trust. We found it crucial to accept smaller commitments and offer co-investment rights in deals we sourced. This created a win-win situation: it built trust and increased our capital pool, enabling us to execute larger deals. LPs gained time to vet our skills and conduct deal-by-deal due diligence with reduced risk.
For example, an investor with $200M might commit $500K as an LP but enthusiastically co-invest $5M in a $10M deal. This allowed us to pursue a $10M deal that might otherwise have been out of reach for a smaller fund. While this meant earning less in AUM fees initially, it builds trust and reputation for future funds.
Leverage Existing Relationships and Build New Ones
While it sounds trivial, building new relationships can be challenging, especially when seeking capital. Fund distributors were immensely useful in this regard. These professionals act as financial advisors to Family Offices, UHNWIs, and HNWI. India's private wealth management industry is informally organized with deep relationships among family businesses. This necessitated searching deep and wide, extending beyond Tier 1 cities. The value of these early relationships went beyond just capital; they also served as sources for future deal flow, market intelligence, and even talent referrals.
Not every relationship leads to immediate fundraising, but each helps to sow seeds for subsequent funds.