Fund formation and first-time fund managers
What is the biggest challenge for first-time fund managers raising capital?
Short answer
The biggest challenge is earning trust before you have a track record. Investors want a team they can believe, a clear thesis and proof that you will protect their capital. The market is also tough right now. First-time managers who stay focused, show a credible team and serve investors well give themselves the best chance of a first close.
I think the biggest challenge is credibility. A first-time manager asks people to hand over money with no history to point to. Almost everything else in the raise comes back to that. Who are you, why should I believe you, and what happens to my money if you are wrong?
A market that makes trust even harder to win
At one of our events, the team from Perkins Fund Marketing shared what they see. They have been in business 28 years and say they have raised over $7 billion for fund managers. They told the room that investors are not answering calls and are holding on to their money. They also pointed out that private equity and venture capital have not been returning much liquidity to families.
This clip is the Perkins Fund Marketing talk on what is hard about raising money right now.
Summary and key takeaways from this video
"It's the hardest environment I've ever seen to raise money, and that includes 2008."
If you are a first-time manager and the raise feels slow, you are not the lone exception. Everybody is having a hard time. That does not change what you need to do, but it should change how long you plan to spend on it.
What family offices want to see before they trust you
When I speak with family offices, capital preservation comes up first and second. They know how to make money. They do not want to lose it. They care about that more than taxes, high growth or a new exciting idea.
They also want a team that looks consistent, reliable and professional. A recognized name can help you get meetings. That could be someone from a large investment bank, a well-known private equity shop or a respected business figure on your advisory board. If someone like that backs you, investors may be more willing to take a look.
In this short video I explain what family offices look for in private equity fund managers, including capital preservation and team credibility.
Summary and key takeaways from this video
Service matters too. The most common complaint I hear is that nobody listens to them. Many managers want to raise from pension funds and endowments, because those checks are bigger. Family offices may allocate 3 million, 5 million or 10 million, and sometimes 1 million or less. So they often get weak reporting and nobody senior to call. A new manager who does this well can stand out.
Without a clear thesis and some urgency, the raise stalls
Another guest, who works with emerging managers, said most fund managers do not even have an investment thesis. They see many shiny ideas and drift outside what they know, which raises the risk of default. Their advice was to stay in your line and then let the thesis tell you who your investors are.
Here a guest explains why emerging managers need a clear thesis and why smaller managers cannot sit on the sidelines.
"As a smaller fund manager, you need to move. As an independent sponsor, you need to do deals. You cannot wait."
I would add one caution. Moving does not mean rushing past the details. Many managers talk to a securities attorney early about how to approach investor conversations.
What I have said on this at our events
One trap I see with first-time managers is waiting. Many hedge fund people believe that if you build the track record, the investors will come. That is not true, because if you do not start raising capital until you have a long record, you have not learned anything about what investors want. The other trap is time. People say they do three meetings a week or five to eight hours a week on the raise, and then wonder about the results. Someone on your team probably needs to spend 20 or 30 hours a week on it, if not more.
"Some people think, especially in the fund management industry, and the hedge fund space needs to hear this all the time, is if you build the track record, the investors will come. That's not true either, because if you don't try raising capital until you have a long track record, you're not going to have learned anything yet."
"And really finding that the person on your team is going to dedicate the time is a big challenge. Most people say, "Oh, I'm just, you know, doing three meetings a week or five to eight hours a week in raising capital." And then they're not giving enough results. Well, someone probably needs to be spending 20 or 30 hours a week raising capital, if not more."
Facts and figures
- The Perkins Fund Marketing team has been in business 28 years and says it has raised over $7 billion for fund managers.
- In my experience, family offices may allocate around 3 million, 5 million or 10 million to a fund, and sometimes 1 million or less.
- A guest who works with emerging managers said most fund managers do not have an investment thesis when they first start working together.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: 10 Advanced Capital Raising Strategies That Took Raising $1 Billion + 10+ Years to Find Out, What are Family Offices Looking for in Private Equity Fund Managers, Why Emerging Fund Managers Struggle to Raise Capital | Wealth Management & Investor Shifts. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around fund structure, investor outreach rules and offering documents. Do not use AI to write your own legal agreements.
Next moves
- Write a one-page investment thesis that says what you will do with the money and why you are best at it.
- List the people on your team and advisory board and what each one adds to your credibility.
- Describe how you will protect investor capital before you describe returns.
- Plan your investor reporting and who will answer calls after the money is in.
- Many managers talk to a securities attorney as they plan their outreach.
People also ask
Do first-time fund managers need a famous name on the team?
It is not required, but I have seen that a well-known name can help in getting meetings. If you cannot add one, show the experience of the people you do have.
Should first-time managers raise from family offices?
Family offices can be a good fit because they often write checks of a few million dollars. They also tend to want better service than they get, which a new manager can offer.
Is it a bad time to be raising a first fund?
Guests at our event called it the hardest environment they have seen. That means expect a longer process and a lot of follow-up, not that it cannot be done.
Related questions
- What is a fund of one and who uses it?A fund of one is a private fund set up for a single investor, usually a large family office or institution that wants its own terms.
- How do I form a Delaware limited partnership for a fund?Many sponsors work with an attorney on the state filings and a limited partnership agreement.
- How long does fund formation take from start to launch?There is no single number, because fund formation runs on two clocks.
- How do I start my first private equity fund?Start by learning who will fund it.
Work through it with the data room checklist. See all fund formation and first-time fund managers resources.