E250: The GP Fundraising Playbook: From First Meeting to Final Close

0:00Tell me the story about how you moved from London to Columbus, Ohio. It was definitely the last place I ever thought I would be prior to moving to Ohio. I moved here for personal reasons. My ex-husband had a family business that was headquartered here. And I had just joined TPG Axon in London, which was an amazing opportunity for me to work with. a big spin out from Goldman Sachs on the hedge fund side, who was building a really big hedge fund platform under Dave Bonderman's broader TPG platform. And I was supposed to go execute everything in Europe. And then life happened. And I'm a family first person.

0:38So we moved to Columbus and I worked remotely for TPG Axon covering Europe, which was a crazy way to live your life, honestly. I was on one of those old school Citrix dial-ups. This was before remote work was well thought through. When I got to Columbus, I serendipitously was introduced at a cocktail party to two Sequoia partners who were, at the same time as us arriving here, were lifting out of Sequoia to bring venture to America. And I just started this new gig in the hedge fund space. And here were these two crazy guys that told me that they were going to invest in technology companies between the coasts.

1:23And this maybe tells you a little something about who I am, but it was one of those opportunities that once I heard it, I couldn't unhear it. And I basically called them up and said, I'll take out the garbage for you. I'll do whatever you want, but I do know how to fundraise. And so I could be in charge of your investor relations. And that is the start of my Columbus journey, which has been, quite frankly, the most exciting decade and a half of my life. It's interesting because a lot of times when people hear narratives about Sequoia or Drive, they're hearing it at a later vintage. So Fund 4, Fund 5, Fund 6, once it's already consensus.

2:03But you saw something while they were in their Fund 1. What exactly did you see that made you want to drop everything and join Drive? This is the story of my life. It is contrarian and exciting, and I am super drawn to incredibly smart people. I always want to be the dumbest person in every room. And when I met them, those two things were true. With the advent of cloud infrastructure, great companies can be built anywhere. And Silicon Valley was already getting frothy in 2012. The idea of huge TAMs existing outside of Silicon Valley logically made so much sense. When you think about the GDP of the middle of America, it was at the time the fifth largest GDP in the world.

2:57And that was an opportunity that seemed super obvious to me. But to your point, it wasn't as obvious to the LP community. And the LP community, I think when we started, the thought was very much one. And I mean, they're very humble. But of course you think, oh, every Sequoia LP is going to want to do a Sequoia spin out. That doesn't end up being the case because there was so much new for the LPs to have to chew on and defend in front of their own ICs that, you know, what we thought would be a really easy fundraise wasn't. And by the way, I've never done an easy fundraise. So lesson learned there.

3:43It never gets easy. Fun five. It never gets easy. Why is that? Is that because you're always going kind of towards larger fund sizes? And why does it never get easy? It never gets easy because there's always, there are always new factors because inventor, unlike say event in a hedge fund space where you have these open end structures, which are constantly, which have their own issues, right? Because there's constant liquidity. So you're constantly really close to the market, but you're constantly also at risk of losing it. So that's a different beast. But in the venture world, you really are only in market every two and a half years.

4:23And so much changes in the world in two and a half years. At a macro level, sentiment changes or liquidity profiles change. And it's as hard in a bear market. It's hard because coffers are dry. And in a bull market, it's hard because LP's heads are exploding because everyone is trying to raise money so quickly. And I just don't think they have the bandwidth to address it all. And so it's always really hard to manage that sentiment. And then at the micro level, venture firms, I think, have a really high retention rate because they're very small partnerships. But LP's strategic initiatives shift so much over a three-year period that someone who you were really close with in fund two may have a completely different set of priorities when you go out with fund three.

5:14And yes, it's on you to stay close to that and manage that evolution as it goes. But just the natural evolution of every business means that the priorities year one and the priorities year three are going to shift. And so I think the most important element of fundraising is understanding that that dynamic and understanding how much things shift and knowing that no two fundraisers will be the same because of those sentiments. And that means that every fundraiser, you need to have the ability to not only manage the people that are already bought in and will continue to buy in, but to manage the churn and know that like the skill set that you as the fundraiser need to have is the skill set of networking, not honing the existing, just honing the existing network.

6:01What's the difference between networking and honing the existing network? Tell me about that. With an existing network, you have a set of really close relationships that you would leverage to get money through the door. When you're constantly networking, it's more of an enterprise sales model where you need to have a really big top of funnel at all times because what is going to convert is not the same raise over rates. So in my opinion, that's the only way to be long-term successful. First and foremost, because personal relationships don't turn into transactions. That's just not the way the world works anymore.

6:44Also, you know, even if I was a very well-networked person and, you know, had everyone that allocated on speed dial, realistically, you could maybe, if you're really good and really social, which I am neither, have 50 great relationships. And then you have to bank that a good portion of those 50 relationships are going to convert. Because at any scale, whether you're a$50 million fund or$5 billion fund or$15 billion fund, you're going to have at least 50 relationships in there. And so to me, the math doesn't work on that because the conversion rate is too low in any one fundraise. And so my approach to fundraising has always been one of make sure that if your conversion rate is under 5%, that your top of funnel nets out to whatever the number is that you want to convert, that you have the right amount in top of the funnel.

7:40If you're not in touch with over 700 accounts, you're not going to be able to close on your fundraise no matter what size. And so to me, that is networking, where you're constantly building out new nodes, new networks, because things shift. Today, I would say that, you know, there's factors that we could see coming, like the lack of liquidity in LP's coffers. But there's other things that you didn't see coming where the administration is trying to hamstring endowment capital, right? And so if they don't know how much of the long-term assets they're going to need to feed the annual working capital lines, then they don't know how much money they're going to be able to pull into their long-term pool.

8:27So all the endowment relationships that I've built over the last decades, some of those might transact in a next fundraise, but a lot of them couldn't due to factors that they have nothing to do with. So if I'd only focused on my existing relationships in the endowment space, I wouldn't be able to close a fundraise. But if I had spent my time making sure that I'm along with the 100 endowments that are out there, I'm focusing on the 200 pensions and the 50 RIAs and the 20 private wealth platforms and making sure that those decision makers are also aware of what we do and how we do it, then I've got a much better shot at being successful.

9:11How do you balance relationships with the numbers game aspect of fundraising? it's such a great question because this is the kind of thing i think about when i'm playing in bed or in the shower you know how do i build this business where i am building a high degree of trust with my gps and creating a high degree of trust with the lps therefore being transactional with neither, but understanding that the true nature of this is in a way transactional, is in a way enterprise salesy. I haven't run into a roadblock with it yet. The most important thing that I do is even though it's transactional, it doesn't mean it's not thought through.

10:05So if I have a conversation with an LP and they tell me that what they're looking for in their book over the next 12 months is to fill out growth equity managers because that's what's lacking in their current portfolio, I'm not going to go send them a seed manager. And so I think that making sure that while my volume might be high and the conversations are quite broad, that they are not empty. And that when an LP gives me intel on what they're doing, that I respect that first and foremost. And that to me creates a win-win because I think the greatest thing you can do is give back people their time.

10:53and that sounds so trite, but I think it's the only thing that we're all short of. And so if I can only, if I make sure that I only put qualified leads in front of my GPs and conversely, that I'm only showing LPs, a segment of the market that they're interested in, I build fidelity with both of them. And that philosophy on how to build CNAFINI in the way that I'd like it to be built. I think there's a couple of truisms I've picked up from some of the greatest fundraisers, like Rahul McDowell, who's raised$99 billion. And there's a couple paradoxes to how the top fundraisers work. So one is they'll spend an inordinate amount of time with individuals.

11:38So they kind of pick their shots very early. His example, I think it took him 15 years to get a check from University of Texas. He's kept on delivering value. That model, however, although Rahul might not admit it and other people might not admit it. It only works if the underlying capital pool is large and if that underlying check is going to be sizable, it's going to be a platform shifting type of check and capital partner. What a lot of the top fundraisers do is they're extremely selective at the onset. One way to frame that is there's no such thing as a small LP or a small relationship. Every LP even, and especially sometimes when they make a$100 ,000 or$250 ,000 dollar check.

12:21Sometimes those are the most difficult to manage and most time consuming and energy consuming relationship. Making the bets on the right LPs on the front end, I found to be something that almost every top fundraiser, whether they're literally a fundraising for their firm, or they're the founding GPs of fundraising, it's one thing that they do. And the second thing is paradoxically, once you're in this club, they give just the best service ever. So they give the seven star hotel treatment to each one of those people and become non-transactional. So in many ways, they're very, very calculated in the front who gets into the VIP.

12:55And then once you're in, then you get the full service. You never have to pay. You could invest 10 years down the road, five years down the road. It doesn't matter because what matters is that we're going to make sure that you're having great experience throughout the entire process. And at some point, to your point, you're going to want to do a growth equity fund. It's inevitable that at some point, there's going to be a match between what you're doing, what that LP is doing, and you just have to be around the hoop at that point. So there's this kind of paradox I've seen in best fundraisers. I just have a very different philosophy on that.

13:26I don't have a ton of particularly close relationships, and I'm not looking for those. um i am however really focused on market mapping i learned a lot of that from working with really brilliant gps right if you're going after a certain market make sure you know every player in the market who are the biggest players in the market what are they doing and then go up go after the ones that are the most attractive that might be i i might be misconstruing part of what you're saying. But to me, I would never, for example, build a relationship with the GP in the hopes that in the next 15 years, something might hit.

14:17First and foremost, or sorry, I meant LP, not GP. First and foremost, because LPs get so bombarded, so bombarded. I feel bad every time I send them an email, and it's a lot. I try to really deliver about when I send them something. I try to make sure it's something that, you know, as our attention spans get shorter is bite-sized by nature up top. And then they can either dig in deeper through further literature, the call, whatever it may be. But to me, it's much more important to say, like, say we're market segmenting. We think pensions are going to be really important in this coming fundraise.

14:55Then I'm going to market map the pension world, see whose dollars match up best to the fundraise, right? If you're raising a$500 million vehicle, I want to be in front of as many$50 million check writers as possible because that's the best return on time versus$5 million investors. If you're raising a$50 million fund, you should be. And so it sort of scales to, I would say, anyone who could be up to 10 % of the fund. That's, I think, your ideal customer profile. And then I go after those that are active either directly via their consultants, their outsourced CIOs, whatever that might be. and that mix, that market mat is frozen in time.

15:39So as much as I would love to, when I add in a new, when I take on a new client, go back to my market map and rinse and repeat the same process, the reality is going to be, the names will likely still be very similar because pension funds don't pop up every decade, century, but their priorities will shift and what they're interested will shift. And I also make sure that, by the way, my GPs don't overlap in strategy and style so that I have a menu of things that are different because I don't want to be selling competitive managers against each other. I don't think that serves anyone. And I also want to make sure that, you know, there are multiple potential points of interest in a specific LP market segment.

16:26So some pensions might be really interested in early stage health care. Others might be interested in late stage cybersecurity. Some may like a thematic approach. Others may want diverse mandates, whatever it may be. And in that sense, like the tagging, the interest tagging of your LP base is super important because it allows you to do this exercise quite quickly. But it is, I think, really different from saying I'm going to build relationships with these 20 VIPs and then something will hit. I don't find it effective. I also do multiple fundraisers a year for different managers. I wouldn't be in business if I was waiting for LPs for the match to be made.

17:15Because by the way, this is like a marriage, right? When you invest in a venture fund, you are invested for the next 12 years. It is a big decision. No matter how close or how far away you sit, whether you're the family member whose assets are going into it or a fiduciary who is responsible for someone else's assets, It's a big decision because you can't reverse it very easily. And so I think the matches are really hard to make. And so you need to have a ton of shots on that because the probability of them converting is so low, which is something I annoyingly always come back to. When you're talking about GPs, you're talking about for the GPs that you invest in or just other GPs?

17:54but when we first started sine fine i it always had to be because you know i was starting it on my own like in my garage it's a nice garage haha now it is i was out of the garage i think yeah you should see my garage um and it was always it always had to be an extension of my skill set which was around ambassador relations and capital formation but i am very aware that this is a services business. And again, having learned from really, really smart GPs and portfolio managers in my life, I want to build a product because product scales and services are harder to scale. And so I thought, okay, I'm going to go out and find really interesting managers to work with, help them institutionalize their LP base, and in that process, also invest alongside of them.

18:47So why wouldn't I build a fund of funds that invests in managers? So we also put our own capital to work with these managers and a number of others that we think are really interesting. And so that was plan A. And it was kind of like my pre-seed deck, right? The first version of your mission isn't what you bring to market. because when we were launching this, it was 2022 into 2023. There's a really brutal market and I will never blame the market for anything. This is, I'm taking full accountability. I, we, the team that have put together to do this could not get a fund to fund off the ground. So when it was clear within the first six months of being in market that we weren't going to be able to get to a first close, I've done enough fundraising that in the first six months, you need to be well into a first close to have a successful fundraise.

19:42And so it becomes a self-fulfilling prophecy in both directions. Yeah. Yeah. And so I was like, there is no product market fit. So to contrast your style, maybe from Rahul's, is he is focusing on the individual and you are focusing on what the LP needs today. So you are delivering the product, solving the number one or top three pain points of the LP today. and once that LP invests into a fund that you're partnered with, then they're going to be there for the long-term relationship. You don't have to worry about how do you build a relationship with an existing LP. That's much easier than building a relationship with a prospective LP.

20:18So you're focusing on what problem can I sell for you today and that's your entry into this VIP world and then you manage the relationship once they're inside the VIP. Yeah, but I would say that my true VIPs are my GPs. So, you know, we work closely with three, four managers at a time, no more at this point, right? We want to build out the business and probably double that, but I need to clone myself in a certain respect in order to do that. And we're really going out and making sure that both the GP and the LP's time is protected in the sense that we want to make sure that when we go to market with a product, when a GP goes to market with a product, which we are in part or entirely in charge of completing, i.e.

21:05completing a fundraise, that we do that successfully in the least amount of time. And because we have so many conversations with the LP community, we already know who we should go out to with that particular product because of the market mapping work we did, because we're out in the market talking to the LPs and making sure we understand their needs so that I'm not going to go knock on someone's door with a product they don't need. because by the way, that also damages my relationship with that LP. I want LPs to know that I will only reach out to them with things that might be of interest. The VIP list of LPs is different for each manager.

21:39So I'd have four different VIP lists, right? And there could be some overlap, but for the most part, there isn't. And so I've got like four different blocks of, I guess, VIP LPs that correspond to each manager and where, you know, the LPs priorities correspond to what the GPs are offering. And this is where I think a lot of GPs get it wrong, which is the most difficult thing to do is to get the first meeting with an LP and decision maker. The second most difficult thing is to get the second meeting with the LP decision maker. And the third is the third meeting. And I say that in jest, but a lot of people don't realize how important that first meeting is in getting that second meeting.

22:18And how many, that pipeline from first to second meeting might be 10%, it might be lower depending on the different dynamics. What does it mean to deliver on that first meeting? It means, A, being a good listener, not transactionalizing them, figuring out what they need. Forget about what you need, which is obviously money from the LP, but figuring out, A, if they're even a fit. If not, how could you salvage the rest of the meeting and perhaps build a relationship over time? We talked about this, that you could only build so many relationships. You have to focus on your immediate fund. But you want to make sure that that LP goes out of that meeting saying, wow, that was awesome.

22:50Maybe not a fit, but we're going to be tracking them because LPs also have two buckets. Well, they have three buckets. One is we're never going to meet with them, although they'll never say that again. Two is we're going to track them. And three, this is something that we might invest in this vintage. People oftentimes think, well, you're going to track me. Oh, you know, that's a way of blowing me off. That's actually a pretty small bucket of LPs or GPs that LPs track. You want to get in that bucket at the worst case. And the way to do that is to deliver on that first meeting. And if you take that down to the most basic neurobiological levels, you want to create self-reinforcing behaviors that says LPE sees this GP.

23:24If they're not a fit, they add value to my life. Therefore, I will add them again. This neuroassociative conditioning between seeing a specific person and having a positive experience. Such a good point. I make a lot of efforts of knowing a lot of GPs, even though we don't work with a lot of GPs. And it is exactly for that reason. And my managers are actually all very good at understanding that first order issue or concept where if you are able to deliver some sort of value, you stay front of mind. Or I wouldn't, that's a transactional way of putting it. You start building a level of trust. I think that's what it like comes down to.

24:13And when in a first meeting, you're going to either fall into the tracking bucket or we're not going to take the second meeting, right? Those are your two not perfect options. Like perfect option is we're going to go do the work on this. But in order to really square yourself into the tracking and I'm going to keep you on our list camp, it's exactly that. And you can do that if you know enough GPs. You're obviously talking to people who are active in the venture market. And by the way, there are cases where, you know, new entities pop up all the time. And I'm going to make sure that before I put any entity in front of one of my GPs, that I know that they are active in venture and they are deploying capital.

24:55That goes to the behavior. How do you know that somebody is going to invest? They're investing currently. Everybody says they're open for business. But how many investments have you made in the last six months? It's the same question that startups ask GPs. Okay, you're active. How many have you invested? How many SaaS companies? How many consumer companies? Yeah. And I found that I find that LPs over the last decade have become much more transparent about that. I think people used to be, and maybe this is me also being younger in my career and less bold about asking the most important question, which is exactly that.

25:27Like, what have you done in the past six months and what are you looking to do the next 12? That's what it's about. Yeah, it's funny because now I've had several decades of raising capital, whether startups, venture, funds. And almost without an exception, the people that get triggered by this question are the ones that are not trying to be transparent. And the people that want, that have a scarcity of time and are looking to truly deploy capital love that question because it's a way of saying, how do I not waste your time? The people that are just trying to waste your time, you get extremely triggered by that question.

25:59It's a very important question. And so that's why I'm like, man, you know, when you talk about these star fundraisers having these really deep relationships and, you know, going to the U.S. Open and doing all these things, I'm like, you know what? I feel like that's most people's last thing they want to do when they're done with a super long week of work. And they have been doing back-to-back Zooms and they still need to write five menos and they, you know, haven't had the time to do anything. And I think that in a Zoom-first world, the world has gotten too efficient. Things have happened too quickly, in my opinion.

26:35No one has time to breathe. You could do 10 Zooms a day, no problem, according to the calendar, but you will be so, like, you become so inefficient. And I think because people are so overscheduled, more than ever, being a little more transactional and saying right out of the gates, let's make sure that have us be in a conversation right now is a good use of both of our times, I think is everyone's dream. So I think that's, to your point, part of why LPs are opening up more because they're like, okay, I only do one new manager a year. And right now we're looking for pre-seed. Great. I'm not going to waste any more time, but there's an amazing, there are three amazing pre-seed managers operating in these three spaces.

27:24Here are their names, here are their details. And I've asked them if they're willing to share the decks. And if yes, here they are. If you would like me to put you in touch with any of them, happy to do so. Something like that, that is super useful, right? Support for today's episode comes from Square, the all-in-one way for business owners to take payments, book appointments, manage staff, and keep everything running in one place. Whether Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business without running yourself into the ground.

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