Always be fundraising.
In addition to the acceleration and advisory services support that Capria directly provides teams, we also pull in our advisors and other experts throughout our network to share lessons learned. One of the experts that teams have had the opportunity to hear from is Johanna Posada, a founding Partner of Elevar Equity. Elevar Equity is a global impact investing firm managing three funds with $165M AUM and they recently announced a partnership with TPG to raise a $2B impact fund. She sat down with the teams from Africa and MENA to give them advice on her experience getting Elevar Equity started as well as the skills needed to become a leader in the industry. Below are some of the highlights.
What is so hard about fundraising?
With no track record, and even before the term impact investing was starting to become more mainstream, Johanna Posada started an impact investing fund. In 2006, Johanna and her business partners recognized that non-profit organizations were limited by legal and structural constraints to fully finance the growing micro-finance industry. A private-equity, for-profit entity could help micro-finance realize its full potential. Working with an anchor investor, they raised funds by first reaching out to friends and family and then moving on to other private individual investors. The key to their success was defining a market opportunity that had been over looked and targeting investors that believed in the numbers. The investors in that first fund were some of the first to define themselves as impact investors. They were interested in both competitive financial returns and measurable impact returns.
As we all know, raising capital is top of mind for any fund manager. Any fundraising plan should focus on the needs and interests of your investors. Although it may seem individual investors would be easier to support they can often be just as demanding as institutional investors. Each individual investor is interested in a different set of return expectations – both financial and impact related. Given the varying expectations, the reporting requirements from individual investors can be every bit as time-consuming as those of institutional investors. Johanna’s advice is to make sure you have sufficient operational support to meet the investor needs; whether they are private individuals or large institutions.
Fundraising for the second fund should be easy! (Spoiler alert; it’s not)
By early 2008, the first fund had built a lot of momentum and the Elevar team felt confident they could close a second fund. Johanna and her partners learned that year how general market events can adversely affect fundraising and the importance of having an anchor investor. Several of Elevar’s LPs agreed to cross over from the first fund to the second. The credit crisis in late 2008, however, meant it was difficult to find new individual investors, so Elevar turned to institutional investors. Large institutional investors will often ask for more favorable terms or want the same terms as your anchor investor. Although a lot of time and money was spent on due diligence, the well-known institutional investor they were targeting did not invest in the second fund. Even though the effort to attract a large institutional investor was a lost opportunity because the team already had already gained commitments from an anchor investor as well as from long-term Elevar LPs they were able to close the second fund.
Expect that everything changes
After starting a fund as a new team and then raising a second fund in the middle of the credit crisis, the expectation was that raising a third fund would be easier. However, post-credit crisis investors had a new set of expectations and the anchor investors from Elevar’s previous funds had changed their own thesis. Johanna admitted that fundraising for the third fund was even MORE difficult than the first two, despite their impressive track record, but in the end through experience and focus they got the job done and closed the third fund.
Here are few of the key takeaways –
- Be informed – conduct research so that you understand the needs of LPs – understand their mandate and how you fit into it. Adjust your pitch, but be genuine.
- Get warm introductions – cold calls are hard – prepare materials to match the level of introduction.
- Have an effective and well organized data room – you are a fiduciary so present yourself as well organized.
- Find an anchor investor and negotiate early before approaching other investors.
- Always work to build soft skills and your emotional IQ – you need to be able to read people – know when to pursue and when to let it go.
- Be an effective GP – investors want to know that the team works well together – even if you are geographically disbursed.
- “Always Be Fundraising” – keep your relationships informed and warm.
Remember, top impact fund managers will be fundraising for a lifetime so it’s important to learn from your experience and remember that it doesn’t necessarily get easier. Learning from and interacting with leading impact fund managers like Johanna are some of the benefits we bring to teams throughout the Capria Network. If you’re interested in working with us, apply now at capria.vc/apply or contact us.