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!
john.cook@wjhopper.com