For emerging fund partners, running a firm can seem like an endless uphill battle. Back-office processes are still being ironed out, positions still need to be filled, and the blue-chip cachet needed to easily win over institutional investors is yet miles away.
David Fisher, General Partner at Fintech and Supply Chain IT-focused firm 9Yards Capital, has been there. What started with $45 million AUM has grown to $800 million AUM today, and 9 Yards counts Coinbase, Robinhood, and Better among its portfolio companies.
Fisher recently joined Flow for its first in a series of Roundtable discussions. The series aims to help new fund managers launch and scale private market funds through in-depth discussions with established industry veterans. Fisher’s advice is particularly salient for managers who are just starting out, including tactical guidance on how to land those first institutional whales (hint: patience is key).
Nail your firm's process and culture
In its four-year lifespan, 9 Yards has scaled from three people to eleven and grown its AUM by more than 1,600%. In the process, Fisher says that two critical intangibles underlie everything: process and culture.
Process encompasses the workflows of everything inside and outside the firm: sourcing investments, approving investments, diligencing investments, funding investment, and collaboration among the firm's team members. That includes everything from how funds onboard new LPs, to how the company's internal knowledge base is maintained, to what tools are used for each step. "These processes enable a number of people to work together in a collaborative fashion where 1 plus 1 equals 11, it doesn't equal -1," says Fisher. "How do we get the most out of everyone's skill sets instead of there being too many cooks in the kitchen?"
Culture encompasses the relational standards and context in which those workflows take place. At 9 Yards, that broader culture can be expressed in a few maxims: One Team, One Dream; It's About the We and not the I; Strong Opinions, Loosely Held; and Tap Dance to Work. It's one thing to create a workflow for collaboration, but if that work isn't taking place in a collaborative culture, it's for naught.
Set up systems for the long haul
When designing these processes, it's important to create them in a way that not only works right now, but five years later as well. Screwing up your systems is, in Fisher’s words, “incredibly painful.” Changing law firms, fund admins, and even which collaboration software you use all has costs, from the moderate to the major. When it comes to the software that drives your funds, opt for modular tools that allow you room to grow, rather than rigid options that don't scale with the firm.
That also means hiring ahead. You may not need a VP of Finance at the present moment, but unless your whole firm is in an inexorable downward spiral, you probably will soon. Identify the positions that you'll need and fill them now rather than later.
Attracting institutional investors doesn't happen overnight
Institutional investors aren't all built exactly the same, but they do generally share a conservatism when it comes to investing in new funds. When hunting whales, expect most of them to say no, but do so optimistically. "No doesn't mean no forever — it just means no for right now," says Fisher. Continue to follow up with contacts at the hedge fund, pension fund, bank, or whatever institution you're courting, and maintain a strategy of polite persistence.
For institutional LPs, which tend to stick around for deal after deal rather than vanish after one or two, that persistence is usually worth it. Keep in mind that that first rejection can actually be a critical factor in building a long-term relationship. Names and ideas percolate in people's minds over time, and even the mere introduction of your firm's name after a cold call can be the first step towards familiarity that makes closing a deal later on more likely. And never forget: For every 50 institutional LPs that say no, only one needs to say yes.
Be strategic when trying to land institutional LPs
Aside from persistence, there are other straightforward methods that can help you land your first couple of big LPs. Offering SPVs is a great way to introduce LPs to your fund through one specific deal, when trust is still being built, and it allows you to demonstrate your firm's processes and culture without the typical risks associated with a fund.
Early on, while you're still building cachet, co-investing with larger, established funds can help augment your reputation through positive association. "It puts a good memory in their bank," says Fisher.
Still, the conservatism of the institutional LP doesn't typically go away after you've landed them. It’s vital that you stay hyper-focused on your firm's thesis. Institutions are easily spooked by strategy drift and don't like putting their money anywhere other than where they thought it would go, so it's important to demonstrate that your fund hasn't overextended its reach into far-flung types of companies.
Pick partners that can grow with the firm
Fisher described his success in picking partners that can work with 9Yards’ ever-evolving needs, extending to law firms, administrators and software platforms. Flow has been a key long-term partner throughout the 9Yards journey, offering the levels of service needed to enhance LP relationships and the flexibility needed to serve 9Yards for years to come.