You have experience in asset management, perhaps with a private equity firm or fund manager. Now you’ve decided to venture out on your own or with a partner to establish your own firm and start a new private equity or venture capital fund … but now what? This may seem straightforward at first, but new fund managers can quickly feel overwhelmed after working the myriad of legal, organizational, and compliance considerations involved in starting a new fund for the first time. In this article, we’ll provide some practical, yet essential, tips along with lessons we’ve learned from fund managers to help those starting out increase the efficiency and long-term success of managing private equity funds.
- Importance of Infrastructure
When starting your first fund, it’s normal for your internal team to be small and have limited capacity. At this stage, it will be important to focus on putting the right infrastructure in place to help set your firm up for success. This doesn’t mean rapidly expanding your employee headcount, but rather engaging the right advisors and service providers that can help you along the way and that you can consider part of your extended team of thought leaders and trusted business advisors. Critical advisors to engage early on will include legal counsel, a fund administrator, and an accounting firm, to name a few. Here are some key elements to consider when engaging these advisors:
- Beyond having the right capabilities and experience for your needs, will they invest the time to truly work with me and provide helpful insights into technical areas I’m unfamiliar with? You don’t know what you don’t know, so it’s important to select an advisor that is willing to spend the time to get to know your business, ask the right questions, and speak up when there are gaps that need to be addressed. They also can share legal, tax, accounting, and industry guidance to help you stay ahead of the curve.
- Does the advisor, and specifically the assigned team that will be working with me, share the same values? Can I meet the individuals who will be dedicated to my engagement? Making sure that the culture will align is critical to fostering a productive working relationship. If you don’t know or like your team, spending any time with them will become a chore.
- What does the advisor’s current client base look like and how do they compare to me? Already having a similar client base will provide opportunities for best practice recommendations. Especially in the beginning, when resources and time are limited, having access to learn how other firms set up their processes can help you avoid reinventing the wheel.
- Think Long Term
When capital is limited in the beginning, you have to make hard decisions on how to best deploy those funds. Here are some key items to consider and include in your budget:
- How can I build a brand in the marketplace long term? This may mean investing in a sophisticated website and social media campaign, in addition to attending industry conferences and being involved in your community.
- When purchasing technology, e.g., investment monitoring software, will this be useful to me not only in the first few months, but also in future years when I’m working on funds II and III? Setting yourself up with scalable software up front means you won’t have to waste resources on selecting new vendors in the future and retraining your employee base.
- Is my legal, tax, accounting, and reporting structure set up for me to add on more funds easily and help ensure efficiencies in annual tax filings and financial statement audits? Spending time and resources in the details such as LP agreements, opening the right number of bank accounts, or establishing access to liquidity with the right banking partner, as well as keeping your books in order with organized supporting documentation, can pay huge dividends down the road.
- Community, Not Competition
If you’re like most new fund managers, you have previous fund experience, possibly working as part of the deal team before deciding to branch out on your own. You’ll be surprised at how easily others will be willing to help you out. See below for a number of connections you don’t want to miss out on:
- Starting any business is hard; and being a new fund manager is no different. Others have been in your shoes. Give them the opportunity to share their story with you. It may help get some frustration off your chest and you may bond over shared experiences, but you’ll also almost always learn something from them.
- Don’t lose touch with your former colleagues. Although you may not be able or want to recruit them to come work for you, they’ll still be able to give you insights on industry trends they’re seeing in their day to day. Everybody likes to help their friends, so why not let them?
- Connect with other fund managers in your market and industry. It’s amazing how connected the fund world truly is; from quarterly CFO update calls, to others just getting together periodically over lunch to share struggles they’re facing. The private equity world is not easy to navigate, and having all the resources out there can only play to your advantage.
These tips and lessons learned from new fund managers can help you have a smoother beginning and a less frustrating, more successful fund management journey. Our asset management practice at FORVIS has extensive experience with helping clients navigate the investment fund life cycle. If you have questions or need assistance, please reach out to one of our professionals or submit the Contact Us form below.