While track record is usually the most important factor in winning commitments from limited partners, having the right story about your firm can also help persuade reluctant investors to open their wallets.
Private Equity Asia reported recently that FountainVest Partners, a China-focused fund, has collected more than $1 billion on its way to a $1.25 billion target for its second fund – after only four months on the market. The FountainVest China Growth Capital Fund II launched in March and a final close is expected in the third quarter, a source close to the matter told PE Asia.
This would be an outstanding achievement for any firm in today’s constrained fundraising environment. But FountainVest deserves some special recognition for its marketing approach.
In May, the firm’s head Frank Tang appeared before the board of the San Diego County Employees’ Retirement Association to solicit a commitment.
Tang’s presentation started off along the traditional lines of any firm that visits a potential limited partner – until a few macro-level questions from board members took the conversation in a different but infinitely more interesting direction.
Instead of churning out a string of macroeconomic statistics, or focusing on quartiles and valuations, Tang launched into an account of his childhood in China: how he didn’t have a bed until he was 15, sleeping instead on the floor of his family’s apartment; how he learned how to trade coupons on the black market to make sure his little brother had enough to eat.
Tang told board members that he earned his way out with an MBA from Columbia University and lived in New York for a time – but decided to return to China because he saw opportunity in the government’s gradual opening-up of the economy.
For the middle class in China, he told the board, the days of worrying about having enough to eat were gone – to be replaced by more developed-world concerns like what sort of jewellery to buy. And that’s a good thing, he said.
Telling the China growth story is hardly a novel approach. But Tang’s insight was far more personal – he had lived through it; he had gotten out; and then he went back.
What’s more, the board members asking questions were concerned about committing their employees’ retirement capital to a fund with exposure to a country that could someday go back to its closed market ways. What guarantees were there that China would continue to open up to foreign investment, they asked?
Well, Tang could cite himself as living proof. After getting a taste of the good life – of working hard to earn a place – the Chinese people would never go back to the old ways, he said.
“In this environment, people have enjoyed the opening of the market; they’ve tasted the benefit of being globally integrated and they’ve seen the rise of an open society armed with internet and mobile phones and [they’re] getting more educated about legal [and] regulatory issues,” he said.
Ultimately, concerns assuaged, the board approved a $50 million commitment to the fund. And Tang now appears on his way to reaching his target, possibly even his hard-cap.
“Don’t be a slave to the slides,” an investor relations professionals said earlier this year. GPs must not be afraid to go beyond the routine pitch and get into the real story of their firm. The numbers are important, but perhaps just as essential is connecting with those people who must decide whether to trust you with capital entrusted to them by hundreds, sometimes thousands, of others.
Get the story right. Don’t get lost in the macro detail. It’s a lesson that any fundraising GP should take to heart, especially in today’s environment when many LPs feel that they can barely tell the difference between firms who are all claiming to be top performers. As several industry professionals have pointed out recently, performance measures are so dependent on the subjective view of the manager that LPs find it hard tell who exactly is top quartile these days.
When an LP is confronted with several firms all boasting similar levels of performance, they look at other issues to help in their choice – things like compliance with best practice guidelines, robust back office practices and LP-friendly terms.
But a good story can also help win over a potential investor. Tang showed why he was a strong candidate to take advantage of opportunities in China; he had a compelling tale and wasn’t afraid to tell it. It’s a story worth remembering.