Earlier this summer, we at Tenzing raised our second fund, entirely virtually, during the covid-19 pandemic. Now that the dust has settled, we’ve taken a look back at what we learnt and a look ahead to what the shift to virtual might mean for fundraising in the future.
When covid-19 was gaining speed worldwide, we were uncertain about the timing of the raise. Our first port of call was ensuring that our people, both in the Tenzing team and across our portfolio, were safe and well, and that our companies were positioned to withstand the impact of the pandemic and resulting lockdown.
Once we were satisfied that our team and portfolio companies were in as secure and stable a position as possible, we spent many hours consulting with our advisors, Evercore, and our existing investors about when to raise the next fund.
As the industry experienced after the global financial crisis, periods of significant market dislocation bring investment opportunities. As a result, we set aside additional capital for our portfolio companies to invest through and out of the current crisis, leaving us scope to do one further platform investment from Fund I. This decision, combined with the unwavering support of our existing investors, led us to launch the Fund II raise in April.
Key to building the momentum that characterised the fundraise was a solid foundation from our existing LPs. We were delighted that 90 percent of Fund I investors by capital re-upped. The remainder were unable to do so on account of unique technical circumstances related to covid-19.
We were astonished at how efficient a fully virtual process could be.
The shift to virtual that came with the pandemic certainly accelerated the speed of the fundraise. After launching in late April, we wrapped up inside nine weeks – three weeks faster than the Fund I raise in 2017.
The combination of Zoom and Slack was hugely powerful. These tools enabled us to a create and meet a demanding and complex meeting schedule. In total, we conducted 40 virtual ‘onsites’ over four and a half weeks. At our busiest we held four in one day, straddling time zones from East to West.
Instant communication meant we could react in real-time during the onsites to meet LPs’ needs, extending or switching certain sessions so that an investor could delve into an area of particular interest. We could also introduce LPs to a wider cross section of the team than they might typically meet in the diligence process. Of our 18-strong team, 14 members took part in at least one onsite.
As we have all experienced over the past few months, the dynamic of a virtual meeting is vastly different to face-to-face. In one way, video conferencing brings a more informal feel to a meeting by blurring the lines of work and home life. It’s refreshing and levelling to see different parties at work from their respective sitting rooms and studies, and cameos from unsuspecting family members can help break the ice and lighten the mood.
However, this informality can also mean that less weight is attached to an in-process meeting. It is also far more difficult to engage with others when you are speaking over video rather than across a meeting room, and impossible to build the same rapport. As a result, you find yourself working harder to generate a sense of significance and import for those meetings, especially onsites, which are a key gating factor in the fundraising process.
To counter this, we focused on injecting energy into our presentations by working on body language and tightening messaging. Wherever possible we kept to a maximum of three onsites a day in order to keep the team fresh, and the quality of presentation and interaction high. Preparation was key and the time we invested in dress rehearsals helped the team feel comfortable and confident presenting over Zoom and ensured the transitions between presenters worked seamlessly during the onsites themselves.
A fully virtual raise wouldn’t have been possible without the in-person interaction that preceded it.
Only one LP hadn’t met at least a subset of the team face-to-face prior to committing to Fund II. This speaks volumes about the significance investors place on first building a personal relationship with the managers they put capital behind. It holds true in our own business: we have never backed a team we haven’t physically met and developed personal relationships with, and we wouldn’t expect LPs to be ready to do so.
In the same way, the fundraise marked the culmination of significant investment from both sides in strengthening relationships over the past few years. Covid-related issues, such as the denominator effect and resourcing constraints, naturally played a huge role in LPs’ decision-making which made the work that we had done inter-fund more important than ever.
Thanks to LPs’ familiarity with our team, culture, strategy and portfolio, when they came to do their diligence on Fund II it was largely confirmatory, and they were comfortable making a new commitment despite the macroeconomic backdrop.
The level of conviction that new LPs had already built, combined with the support of our existing investors drove momentum. The result was a fast and efficient fundraise, which was the optimal outcome for the firm in terms of resource productivity.
It’s clear that the industry is undergoing a shift to virtual, not just in fundraisings but in the investor reporting calendar. GPs worldwide are already holding AGMs partially or entirely virtually. The advantages are undeniable – virtual meetings are not only hugely time efficient, especially for senior investment team members, but are also far less costly and bring significant environmental benefits by reducing global travel.
However, it is doubtful that fully virtual GP-LP communication will become a widespread, recurring theme. The private equity industry is fundamentally a people business and there is no substitute for in-person rapport in building trust and lasting relationships.
Perhaps we might strike a balance. The more formal side of the business, such as quarterly updates or AGMs, which are planned and suit a more controlled medium could move to virtual. This calendar of set piece events might then be punctuated by more relaxed and personal catchups than we are used to seeing, held on an ad hoc basis where travel schedules align.
We now have a base of around 35 LPs of diverse type and geography. We will be staying in close contact with them over the coming months to ensure we strike the right balance in our communications as we slowly return to normality.
Liv Simpson joined Tenzing in 2018 as head of client services. She is primarily responsible for managing communications with existing and potential investors, and leading fundraising efforts