WTT: What it Takes to Raise Capital

0:05This What Ted's Thinking, What It Takes to Raise Capital, Discusses a few tips for small managers to prepare to grow. No one wants to invest in a small manager. There, I said it. But everyone wants to invest in a great small manager. So how does a small manager try to prove that they're great? I'd like to share some tips, most of which are routinely violated by the community of small managers. First, it's not their fault. Having spent a decade and a half investing in small hedge funds, I can't tell you how many times a manager complains that the only reason they don't have capital is because allocators don't get it.

0:50That's completely backwards. It's the managers who don't understand the playing field. My favorite recent example is a blog written by a manager with less than$5 million under management. He attended Global Alts in Miami, apparently didn't raise money from the event, and decided to blame the conference organizers for his shortcomings. Any seasoned allocator will conclude that this manager didn't do his homework, isn't self-aware, and will never grow a business when he blames others for his shortcomings. A friend of mine calls this lesson, don't be an idiot. I'm trying to be gentler. Second, do the work.

1:32In the first quarter of this year, we received 82 inbound requests for managers to appear on the podcast. That's one a day. We have a process to vet potential guests that includes filling out a simple form, answering a few questions, and hopping on a call with our team before we mostly turn them away. It's quite like screening managers for allocations. Incredibly, of those 82, only 20 filled out the form and only four finished the questions. About half of the requests came from PR firms, which tells you the managers are willing to spend money, but they're not willing to do the work. As it turned out, we offered each of those four a slot in our 12 annual sponsored insights.

2:20Third, be lucky. Putting your best foot forward is necessary, but not sufficient. You'll need a healthy dose of luck, too. Howard Marks advises young professionals that the best way to build a successful investment business is to have started 40 years ago. That's a tough one to take to the bank. Fourth, find advocates. The allocator's rule of thumb is everyone wants to be first to be the second investor. The hard part of that equation, of course, is you need investors who allow you to leverage their brand. Eliminating mistakes like these and understanding the landscape are a small subset of tips that can help a manager achieve success.

3:03What else can a small manager do to increase their chances of growing? We put together a sequence of programs where managers can learn best practices. For starters, a manager can engage in our new coaching program to help perfect their story. Second, those wanting a deeper dive can attend our course for investor relations and business development professionals this December. And once you're ready for the big time, you can apply for our Small and Emerging Manager Summit, although you'll need an advocate and investor from the institutional investment community to be eligible. That solves the rule of thumb.

3:40No matter how you cut it, growing a small fund is hard. The industry is facing headwinds for small managers across public and private markets alike, not the lucky tailwinds from the past. Like winning in the game of tennis, you need to cut unforced errors and learn how to hit winners. We hope we can be a small part of your future success. Thanks for listening to the show. If you like what you heard, hop on our website at CapitalAllocators.com where you can access past shows, join our mailing list, and sign up for premium content. Have a good one, and see you next time.