Lorna Clark, @pearonline
You must have a data room when you are fundraising. It’s there to provide LPs access to the in-depth information about your firm, the team and its investments that they need to do their due diligence. Without it, they cannot prepare a recommendation to invest and they cannot give you a commitment to invest in your fund. Given that both GPs and LPs must have a data room, how can you both get what you want out of it?
GPs want to raise their fund as quickly and as easily as possible. LPs want the data room to help them, not hinder them, in the process of completing due diligence and writing an investment recommendation. The GP creates the data room for the LP to use. It seems to make sense then that the GP would want the data room to be as easy to use as possible so they can get a commitment to their fund as quickly as possible. It is really important as you think about creating the data room that you keep this ultimate objective in mind.
How do you get what you want out of the data room?
When you first sit down at your desk to create a data room, put yourself in the shoes of the individual who is looking at the fund, and consider their priorities, concerns and frustrations
Think of your prospects as people, not institutions. They are almost certainly time poor, perhaps juggling the monitoring of their existing portfolio, trying to execute a co-investment and assess various new investment opportunities at the same time. They will need to put forward a convincing case to their investment committee, so ask yourself whether you have done everything you can to help them sell the proposition internally. Think carefully about what you want their output from this material to be and from there, work backwards to ensure that they have everything they need to make this as easy as possible.
Time is valuable and limited. If you get your data room organised and completed before you begin the fundraising process, you won’t waste your time or the LPs time while you scramble to get information together. You will look organised and thoughtful to your potential investors and that can only reflect positively on you and your firm.
Preparing a data room forces you to get into fundraising mode. It forces you think about the questions LPs are likely to ask and gives you time to get the answers and have them in the format you want the LP to receive them.
You should think about the mechanics of your data room and how its management can assist your potential investor.
Choose a data room provider that enables you to deliver the information the way you want it presented. If you want to avoid overwhelming your prospects by releasing all the documents to them at once, make sure that you have the data room set up so it is straightforward for you to give them the right level of access at the right point.
The security of your data is important, but be careful making the security on your documents so restrictive that it actually places an additional burden on the human being reviewing the information and preparing the recommendation. LPs will not thank you if they are forced into painstakingly retyping data from a locked screen into a new document. Remember this new document that the LP has created will not have any security features, you won’t know what information they have taken, or if they have retyped it correctly.
Write a thorough DDQ (Due Diligence Questionnaire) and consider getting a third party to put together a referee pack, as this will make reference calls quicker and more efficient (with the added benefit of placing a lesser burden on your referees). An investor is almost certainly working to tight deadlines and looking at more than one fund; your efforts here may be the difference between a yes and a no.
It is very easy to get bogged down in the minutiae of your data room and lose track of its ultimate aim – to get a commitment to your fund. If you always keep your prospects in mind and try to see things from their point of view, you will produce a data room that works better for them. Information should be managed and revealed in a way that helps your prospects. However, what is good for them is ultimately good for you, and you will also derive the following benefits:
- Number of DD queries is minimised, and those that do come through can be processed efficiently
- Information is delivered securely
- Information can be released or withheld as appropriate
- Ability to see who has been doing what in your data room
The content and management of your data room should always be set up with the LP in mind. If you do not make them jump through hoops, you make it easier for them to say yes. What is more, presenting a professional and credible face to these investors will also instill confidence in your reporting processes once they have invested in your fund. All of this will hopefully result in you achieving your desired aim of getting that commitment.