Over half of LPs scrutinise social media as part of their manager due diligence process, according to a recent survey conducted by marketing and communications agency Prosek Partners. Meanwhile, 45 percent also use platforms such as LinkedIn to select firms for review in the first place. “Social media presence is a growing factor in the importance of due diligence related to investment decisions,” says Jennifer Prosek, founder and managing partner of the agency.
Alex Jones, director of communications at Triton Partners, agrees: “LPs are using social media to assess whether GPs are of institutional quality and as another source of information regarding strategy, skills and strength of relationships. Channels such as LinkedIn are seldom the sole reason for deciding to commit or not to commit capital, but they are another route into a GP’s team and approach, and ultimately to its differentiation. The value these tools can bring to a fundraising process should not be underestimated.”
Indeed, GPs appear to be increasingly cognisant of the power of social media, with 70 percent already using it as a branding and marketing tool, according to the Prosek survey. And of course, the ability to stand out from the crowd is more important today than ever, given the increasingly challenging fundraising environment.
But the use of social media does carry risk, particularly given the regulation that exists around fundraising, and GPs should ensure they have policies in place around the social media activity of their staff.
“Due to the regulatory restrictions of marketing during a fundraise, GPs tend to avoid direct content related to their strategies,” explains Prosek.
“Regulatory restrictions apply to every aspect of communications and marketing,” adds Jones. “You cannot condition the market during fundraising, and so you have to be very careful about what you put out there.”
LPs that cite due diligence as a top reason for using social media platforms
GPs that say marketing and branding efforts are the main reason for using digital platforms like LinkedIn
LPs that view written thought pieces such as whitepapers and blog posts as the most engaging form of content on social media platforms
Source: Prosek Partners’ Private Markets Survey
There are strict rules governing the recommendation of products, for example, as well as explicit reference to performance.
Given that LPs are increasingly analysing individual team members’ social media presence, in addition to official firm profiles, it is wise to have clear social media guidance in place. “We understand that LPs will look at social media channels as part of their due diligence just as we do when we look at portfolio companies,” says Jones. “Every industry now recognises that this is just another source of information that can aid effective decision making.
“Of course, we have policies that make it clear what is and is not acceptable in terms of social media usage. But the crux of the matter is that we expect our team members to be ambassadors of the firm.”
While risk mitigation is essential, the potential to boost brand presence and engage directly with potential LPs using social media is vast. The increasingly ubiquitous use of LinkedIn makes it a highly efficient medium for maintaining brand awareness and communication, for example. Anecdotally, meanwhile, many investor relations teams have beefed up their communications expertise with hires from within public relations and journalism.
“Many GPs have taken to social media as a way to elevate their brand, to increase awareness of their specialised capabilities and to elevate the profile of their key leadership,” says Prosek. “In fact, GP respondents to our survey cited sharing thought leadership as a top reason for using social media platforms. Being a known expert in a particular sector or investment style can certainly aid during fundraising periods.”
Indeed, IR teams are using social media to share relevant thought leadership, to celebrate strategic acquisitions of portfolio companies and to provide a window into corporate culture activities, with the Prosek survey finding videos, thought leadership and news articles to be the most engaging forms of content for investors.
“LPs are more sophisticated than they have ever been, and all the evidence shows that they are using an ever broader variety of sources to inform decision-making,” says Jones. “Social media, and LinkedIn in particular, is just one more. Given how highly competitive the fundraising market is today, you need to have a high-quality digital presence because that is your shop window. You need to share the right information in a way that is effective and engaging, in order to persuade LPs to come inside that shop.
“Conversely, if you get this wrong, it will become just another reason for LPs to look elsewhere. And in this environment, they don’t need more than one. GPs need to use every weapon at their disposal to win and keep LPs’ attention. Social media is just another channel, alongside face-to-face meetings, webcasts and events, for example.”
In addition to general brand awareness, meanwhile, targeted campaigns can prove highly effective in forging new relationships. “Paid-for content marketing using social media can help source new leads,” Jones explains.
“The audience on a platform like LinkedIn is made up of people who are hugely relevant to you, given that it is based on personal relationships. It is possible to segment that audience at a granular level and then push tailored content to those individuals. It is a great way to get in front of people without any intermediation. It is an area of great potential from a fundraising perspective.”
This method of reaching potential new investors will only gain traction as private markets investors embrace the concept of democratisation. “The always-on approach to building brand, including through the use of social media, is a wise strategy,” Prosek says. “We predict that this trend will accelerate, particularly as more GPs look to capitalise on the rapidly growing high-net-worth market.”