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Raising money is tough.
In any situation.
However, per Pitchbook a record high $330 billion dollars are projected to be raised in the private equity space.
Investors are more willing than ever to go all in with funds in alternative investments.
Today, we’re going to focus on how YOU can raise capital through institutional investors.
What is an Institutional Investor?
An institutional investor is typically a group who manages a large pool of assets.
Be that a family office, university endowment, state pension fund or some other sort of expanded portfolio that differentiates them from any other high net worth individual.
Due to the sophistication of the institution the process of raising money and agreeing to terms will normally take longer than when dealing with just one individual.
There is a great deal more of evaluation going into the investment and the institutional investors tend to be much more concerned with the fund manager.
That is who they are betting on and they want to get it right.
Decision Making Process of an Institutional Investor
A good friend of mine – Sid Krommenhoek – told me once that institutional investors will ask questions such as…
Is this somebody who can manage capital responsibly and deliver a return?
Is this someone (fund manager) that is going to leave the fund?
Is this someone we believe will continue to produce equally high results as time goes on?
All of this culminates and reemphasizes the importance of partnership structure.
An institutional investor is going to rely on heavy scrutiny much more so than your typical angel investor.
It is likely that they have accumulated enough data to create a set of benchmarks and key indicators to help them decide which deal is truly the best.
Meaning they will dig into details that would perhaps be overlooked by others.
For example, possible factors that may play into an institutional investors decision making could be the following:
- Geographic location
- Size of fund
- Industry
- Fund thesis
All of these will lead back to the key of it all – which I mentioned above- partnership structure.
This is something that simply cannot be overlooked, and will pay major dividends throughout the life of the fund.
Conclusion
Institutional investors bring substantially more to the table than just about anyone else.
Therefore, it is natural to expect a longer process than on a regular deal.
With that being said, the firepower that they bring to the table will make it more than worth it for you as the fund manager to have them on board.
Little bit of a shorter one today everybody but I hope this was useful in helping you understand how Institutional Investors function.
All the best,
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.
