WJ Hopper FlipChart - Thunderbird School of Global Management
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Transcript WJ Hopper FlipChart - Thunderbird School of Global Management
Raising Venture Capital:
An Entrepreneurial &
GP/LP Perspective
April 2 & 4, 2008
John Cook
Executive Director – WJ Hopper & Co. Limited
Chairman – Thunderbird Private Equity Center Executive Advisory Board
WJ Hopper & Co. Limited
www.wjhopper.com
Boutique Investment Bank – with global representation
London, Zurich, San Francisco, Brussels
Tokyo, Tel Aviv, Sao Paolo, Reykjavik
Focus: International Private Placements
Clients: Leading Private Equity Firms and Private Companies
Investors: Institutional, Government and Private Investors
John Cook: Purdue University BS; Thunderbird MBA;
International Harvester, Merrill Lynch, Security Pacific Bank
What are effective strategies and
tactics to raise capital, both for
entrepreneurs and fund managers?
Vision, strategy, tactics…
and lessons learned…
Importance of Fundraising
“Raising a new fund is an event of singular strategic
importance for a private equity fund. The firm’s future is, in
effect, placed into the hands of institutional investors…whose
capital allocation decisions…are a key influence in shaping
the private equity industry. These investors will, by choosing
whether or not to participate in the fund, either provide a
mandate for continued growth or cast a collective vote of no
confidence from which very few managers will ever recover.”
Source: “Fundamentals of Private Equity” - PEI 2008
Fundraising Ecosystem
Three Layer Cake
(USA / EUROPE / ASIA / LATAM / MIDEAST)
Banks
Limited Partners
Insurance
Family Offices
Sovereign Wealth
Funds
Governments
Corporations
Endowments
Secondaries
Pension
Funds
Fund of
Funds
Foundations
General Partners
CARLYLE
A
B
GOLDMAN
NEA
Portfolio Companies
E
C
D
CVC
F
G
H
Stakeholders
Audit
Legal
Acct
Advisor
LPs
Europe
LPs
USA
LPs
ASIA
LPs
LATAM
$500 MM Thunderbird
Private Equity Partners
GP=Cabrera
Mgt LLC
EXIT
A
C
B
E
D
ENTREPRENEURS
IPO
TRADE
SALE
Fundraising Process
Five Step Process
Total Time 12-24 Months
Strategy Formulation
Pre-Marketing
Understand and
articulate market
opportunity
Initial formulation of fund
strategy and tactics
Internal and external review
and evaluation: resources,
competition, market
opportunity, team
General agreement on fund
strategy, terms, team,
process and documentation
Preparation of
documents/DD
material
Decision to
Proceed
Identify and
interview advisors
Retain Advisors,
Form Team
Marketing
Contact potential LPs
and distribute Fund
marketing material
Select key advisors
Work with advisors to
create suite of documents.
Map universe of LPs, decide
on who to approach and
when and by whom
Finalize LPA, PPM, PPT,
overview, diligence
package, subscription
agreements.
Road-shows
Send overview / teaser to
initial targeted parties
Send PPM to requesting
parties
Set up conference calls or
face-to-face meetings for
road-show period
Complete LP Questionnaires
Invite LPs to visit HQ
DD/Closing
On-site presentations
and meetings with
interested LPs
LPs with decisionmaking process move
forward.
Various formats possible
depending on size of team
and geography:
Individual visits to LPs
combined into a tour
LPs visit manager’s office
LPs agree to commitments
or
LP group invited to
luncheon or other event
hosted by GP
Due Diligence documents
sent to LPs
Communicate closings to
remaining LPs
Develop communications
strategy
Form new fund entity
Prepare to go to
market
Marketing strategy
agreed
Completed Marketing
Docs
Manage process
and monitor
feedback
Incorporate
feedback from
market
Road-show set up
with LPs
Begin to get signed
subscription
agreements
Monitor objections,
make refinement in
process
Face-to-face
meetings with LPs
Proceed with final
closing process
Begin investment
process
First, interim and
final closings
Documents
Marketing Package
Overview
Flip chart presentation
Private Placement
Memorandum
Due Dilligence Package
Subscription agreement
Summary of all
contracts
Actual contracts
(only if requested)
Names of advisors to
the fund
Sample reports to
investors
Estimated timelines
Asset allocations
Curricula vitae
Attribution analysis
Investment transactions
Management references
Pipeline of deals
Articles of incorporation
Risk mitigation
Private Placement Memorandum
Executive Summary
Investment Thesis and Rationale
Investment Strategy, USPs and Value Add
Sector and Geographic Focus
Investment Process, Diligence Process, Use of Debt, Exits
Team Members and Advisory Board
Track Record with Attribution Analysis
Deal Sourcing and Pipeline
Key Terms of the Fund
Risk Factors and Conflicts of Interest
Legal and Regulatory Matters
Appendices
Standard Limited Partnership Terms
Objective = Alignment of Interests
Fund name:
Legal structure
Manager:
Fund size:
Minimum:
Term:
Management fee:
Carried interest:
GP contribution:
Co-investments:
Thunderbird Private Equity Partners LP
Delaware Limited Partnership
Cabrera Capital Management LLC
$500 Million
$5 Million
10 years + Two Extensions
2% during investment period then declining
20% with 8% Hurdle Rate
2% of Committed Capital
Yes for Large Commitments
Vision, Strategies
and Tactics
What is the
Fundraising Vision?
To raise the right size fund
With the right team
With the right strategy
On the right terms
With the right mix of LPs
At reasonable time and cost
Strategic Questions
Blanket The Market Or Be Selective?
Geographic Target: Local, Regional, National, Global?
Types of Target: Corporate Venture, Active Passive, Govt?
Which Staff Should Undertake The Task?
Documents – Who, What, When, Where, How?
Selecting Advisors: Legal, Accounting, Communications
How Much Time and Money Will It Take?
Use Placement Agents Or Go It Alone?
What General Partners Need…
HIGH QUALITY, VALUE-ADD INVESTORS
Good Relationships with LPs
Strong LPs with Patience, Understanding, Insights and Trust
LPs with Sophisticated Approach to the Asset Class
Low Turnover of LP Investment Managers
Global Diversification of Investor Base
Value Added LP Base – Advisory Board Members, Co-Investors
No Interference in Running the Fund – Little Friction
Help with Exits, M&A Opportunities, Company Building
Help with Secondary Market for LPs Who Need to Sell
What Limited Partners Want?
DIVERSIFICATION, HIGH RETURNS, LOW RISK
Attractive Market Opportunity Over Long Time Horizon
Broad and Deep Pipeline of Deals – Systematic Approach
High Quality Team with Cohesion, Credibility, Balance, Stability
Prefer to Back Strong Teams – No One-Man-Band
Portfolio Diversification Across Sectors, Stages, Geography
Special Terms: Co-Investments, Technology Window, M&A or IPO Rights
Stable Investment Environment: Regulatory, Economic, Fiscal
Controlled and Manageable Risk Parameters
Clear Value Creation Strategy of the Team
Serial Relationship with GPs
Clear Exit Routes via M&A, IPO, Strategic Sales
Lower Fees – Equitable Risk Sharing
Target Investors – LP Decision Process
Insurance Companies
Commercial Banks
Investment Banks
Pension Funds
Corporate Investors
Foundations
Endowments
Fund of Funds
Governments
Private Investors
=
=
=
=
=
=
=
=
=
=
Institutional Model
Institutional Model
Strategic / M&A / IPO
Institutional Model
Strategic Drivers
Opportunistic / Strategic
Opportunistic / Strategic
Institutional Model
Strategic / Social Objectives
Opportunistic / Personal
Sovereign Wealth Funds: $2.5 Trillion Problem
Abu Dhabi Investment Authority
Government Pension Fund of Norway
Government of Singapore GIC
Saudi Arabia
Kuwait Investment Authority
China Investment Corporation
Singapore Temasek
Stabilization Fund of Russia
Canada Pension Plan
Australian Government Future Fund
Qatar Investment Authority
Alaska Permanent Fund
Libyan Investment Authority
Brunei Investment Authority
Korea Investment Corporation
Malaysia Kazahana National
$875 billion
$350 billion
$330 billion
$300 billion
$250 billion
$200 billion
$159 billion
$158 billion
$119 billion
$ 61 billion
$ 50 billion
$ 40 billion
$ 40 billion
$ 30 billion
$ 20 billion
$ 18 billion
Wrong Attitude
This is a Piece of Cake
My Fund Was Made In Heaven
Every LP Will Want My Fund
Raise as Much Capital as Possible
This Will Take No Time At All
LPs Are Real Dummies
Target All LPs Of All Types In All Categories Everywhere
No Need For Personal Visits
No Need For Professional Advisors
Right Attitude
My Fund Must Have Its “Issues”And Problems
Only A Few LPs Will Be Interested In My Fund
Better To Pace Myself, Do This In Stages
Work My Network Personally
This Will Take 5 Times Longer Than I Planned
This Will Cost 5 Times More Than I Planned
LPs Are Pretty Experienced Folks
Target Specific LPs Of Specific Types
Be Prepared For Travel
Good Advisers Add Value
Fundraising Trends
Big Picture
Explosion of Private Equity Globally
Greater Acceptance of Asset Class by Stakeholders
Larger Fund Sizes, Larger Institutional Allocations
Top Firms Produce Best Returns - Persistence
Growth of Secondary Market – but at a price
Greater Sophistication at GP and LP Levels
More Transparency, Better Investor Relations
Standardization of Terms & Conditions
Greater Value Added Role of GP
Better Governance and Regulatory Environment
Better Risk Measurement and Control
However --- Much More Criticism of the Industry
Current Environment
Buyout boom of 2003-2007 has come to an end (or paused)
Buyout firms paid too much for deals at the 2006-2007 peak
Debt market closed for larger deals, more equity to complete deals
Recession is fully underway – may be long recovery
Dollar at all time low and dropping
Mortgage market in turmoil with subprime mess
Stock markets increasing volatility
Financial sector Bear Stearns, UBS, Merrill Lynch, Northern Rock
Sovereign Wealth Funds coming on stream big time
Fed and White House taking emergency steps to provide stability
AND YET --- private equity allocations are increasing!!
Popular Sectors / Trends
Traditional: TMT, Life Sciences, Healthcare
Mid-Market Buyouts / Expansion / Growth
Specialized:
Clean Tech Sector
Energy: the hydrocarbon problem
Infrastructure: electric grid, telecoms, ports, transportation
Emerging Markets: BRICS + N11
First Tier: India, China, Central & Eastern Europe
Second Tier: Latin America, CIS, Middle East, Africa
Increasing Interest in Venture & Growth versus Buyouts
Globalization / Regionalization Opportunities
Predictions for 2008
Slow Down in Mega Buyouts (credit crunch/recession/falling markets)
Pick Up in Late Stage Venture & Other Sectors (less leverage)
Non-US Markets to Stay Strong (less mature, still growing)
Secondaries & Distressed =Strong Growth, Tighter Pricing
Sovereign Wealth Funds & Petro Dollars Make Bigger Splash
Think Contrarian - Take Advantage of the Carnage
Biggest Challenge: Build the Case for Value Add
Greater Convergence of Asset Classes
Source: Dow Jones Private Equity Analyst “Review & Outlook”
Survey of Institutional Investors : 2008
Plans to Increase / Decrease Allocations:
78% plan to maintain or increase allocations to private equity
22% plan to reduce or terminate allocations to private equity
Areas of Increasing Interest:
Distressed debt, mezzanine, secondaries, co-investments, venture
capital, growth equity, small and mid-market buyouts, cleantech,
China, India, Russia, Western and Eastern Europe, Latin America
Biggest Areas of Concern:
Credit crunch, economy, recession, exit markets, massive fund
sizes, manager selection, tax law changes
Source: Dow Jones Private Equity Analyst “Review & Outlook”
Where Does The Money Flow?
Institution
type and
geographical
split of
investors in
private
equity funds
Source PEI: 1600 active LPs worldwide
Sector Allocations: Who Gets Most?
Top 50
US pension
fund’s
current
average
allocation
breakdown
by fund type.
Source PEI: 1600 active LPs worldwide
Regional Allocations: PE Stays Close to Home
Global plus
North America,
Europe,
Asia/Pacific
based LPs average
geographical split
of
Investments
Source PEI: 1600 active LPs worldwide
Source: Probitas Partners
Source: Probitas Partners
Source: Probitas Partners
EMPEA’s 2007 fundraising statistics show that private
equity funds investing in emerging markets raised
US$59 billion in fresh capital in 2007, a 78% increase
over the US$33 billion raised in 2006. Fund sizes broke
records, with 19 funds raising US$1 billion or more. The
average size of closed funds grew dramatically, from
US$272 million in 2006 to US$426 million in 2007.
Source: Emerging Markets Private Equity Association
Source: Emerging Markets Private Equity Association
Source: Emerging Markets Private Equity Association
2007 REVIEW & 2008 OUTLOOK – USA
Changes in Capital Commitments
2007
ACTUAL
2008
PROJECTED
ALL USA
PRIVATE
EQUITY
$300 B
100%
$180 B
$320 B
100%
BUYOUTS
$230 B
75%
$125 B
$250 B
65-70%
VENTURE
$32 B
10%
$23 B
$37 B
12-15%
OTHER
$45 B
15%
$30 B
$50 B
15-28%
Source: Dow Jones Private Equity Analyst
Lessons Learned:
Tips & Tricks
The Marketing Push
New LP Relationships are the Hardest to Cement
Start Pre-Marketing Two Years Ahead of Fundraising
Be Prepared for the Long Journey!
Assemble All Documents Before Fundraising
Document Everything, Especially Track Record
Get Local Anchor Investors in First
Think of Every Question Ahead of Time
Designate One Senior Partner As Point Person
Brief Your References, Keep Them Informed
Use Professional Advisors
Use Technology – Video OK – But Face to Face Better
The Marketing Push
Determine Priorities: Close To Home LPs First
Leverage Your Secret Sauce: Why Are You Unique?
Spoon Feed LPs What They Need – No Big Push
Use of Virtual Data Room
Learn From Each Presentation: Adopt and Adapt
Do Not Push LPs for Early Decisions (Court a Negative)
Deal Attribution Critically Important
Track Record Is 90% of the Game – Present it Well!
Answer Each LP Question Carefully
Must Involve Most Senior Team Members
Must Have “Market Terms” (For Your Fund-Type)
The Marketing Push
Keep in Front of LPs – Send Stuff Regularly
Must be a Good “Fit” with LP Strategy and Timing
Talk About the Mistakes and Lessons Learned
Show Succession Plan is in Place
Think Long Term -- Ten Year Marriage
Be Anecdotal, Personal Relationships Matter
Two Way Conversation – Learn to Listen and Question
Lighten the Atmosphere – Be Relaxed
Send Thank You Notes for Meeting and Advice
Get used to it -- Fundraising is a Life Style!
Conclusion: What it Takes?
Takes Time – 12-18 months to raise new funds
Takes Skill – It is an art, not a science
Takes Luck – External events impact success
Takes Money – $1 million per launch
Takes a Team – Cohesive, hungry, smart, dedicated
Takes a Story – who, what, how, when, where, why
Takes Persistence – Must turn over many rocks!
Happy Ending:
Thunderbird Private Equity Partners
Closes Fund at $600 million…
20% Over-Subscribed!
Thank You!
[email protected]