Securing a substantial amount of capital for a startup fund demands product-market fit, a strong network of true fans, and a deep knowledge of your target investors. Let’s go over three common mistakes most fund managers make as they work to secure their first $100 million (the hardest milestone!) and actionable steps you can take to avoid them.
Mistake #1: Many fund managers skip testing their fund idea before they launch.
Testing your fund idea seems obvious but so many managers skip this step. They write big checks to lawyers and back office providers to draft docs and build the fund infrastructure before they’ve even talked it through with their target market. So often there’s a discrepancy between what investors really need and the new razzle-dazzle fund they envision building. You also have to be the right person / team to run it. Stop (and do not pass go) until you’ve gathered the appropriate feedback to ensure product-market fit and founder-market fit.
How to avoid this mistake:
- Run a beta test: Call a handful of investors to get an understanding of what they are doing in your asset class, what problem they have to solve, and what their ideal solution would be. Collect both quantitative and qualitative market research.
- Develop a go-to-market strategy. Use the findings from your beta test to create a report defining your target market, your role in an investor’s portfolio, the problems your strategy solves, timing for due diligence, brand /product exploration, and a sales & marketing plan.
Mistake #2: Many fund managers don’t seed their fund.
Your start-up AUM should not be $0. The more you allocate, the better, but try for at least $1 million. Many fund managers skip this step, a red flag to investors who expect to see your capital in the fund you are managing. Why should they believe in you if you aren’t eating your own cooking?
How to avoid this mistake:
- Like any start-up in any industry, start with a friends and family "round" of fundraising.
- Next make a list of potential true fans, former investors, centers of influence, and other potential partners that can be included in early outreach. Utilize both your network and networks of your founders, Portfolio Managers, and stakeholders. The list should include people who know you, like you, and trust you, people who believe in you even more than what you are building. At Havener, we call this the founder’s network. Call them. Meet with them.
Mistake #3: Many fund managers try to sell to the wrong investors.
Many of our clients are breakaways from big asset management firms where they had tons of AUM and long track records. The first investors they call at their new start-up are the last and largest investors they had at their old shop, but these are not the same people who will invest the first $100 million in your fund.
How to avoid this mistake:
- Study the Rogers’ Adoption Curve. You need innovators and early adopters - typically RIAs and family offices, independent thinkers willing to take a chance. A large consulting firm is not likely to invest in a new specialist boutique.
- Learn how to speak the language of early adopter investors.
- Ditch your pitch and prepare for meetings with these type of investors.
Actionable Steps to prepare for meetings with early adopter investors
The Investor Meeting Playbook includes tips and tricks gathered from our years of experience helping portfolio managers and investment boutique founders close deals with investors.
Also included: Fully editable Meeting Prep Template, which includes everything you need to make note of before you come to the table and includes industry-specific advice.
Going from start-up to $100 million is no doubt challenging, but avoiding these three mistakes will help you set off on the right path. Cheers to the builders challenging the status-quo!