Fundraising best practices and LP tendencies in 2022

Kjael Skaalerud

Kjael is a PE-sponsored Chief Revenue Officer at Altvia, where he leads Go-to-Market activities and is responsible for sustainable growth in revenue and market share. Prior to Altiva, Kjael was the VP of Sales & Brand at Harri, where he led customer acquisition efforts and guided the brand strategy. Leading up to Harri, Kjael founded Skaling Ventures, a GTM consultancy that helped venture-backed Series A firms build a repeatable sales motion while earning his MBA at NYU-Stern.

1. How are fundraising strategies adapting in the current competitive climate given the number of firms trying to raise?

In the wake of an “all-record-breaking year,” it’s challenging for LPs to determine good from great fund managers. In terms of returns, the outliers are obvious, but the middle of the pack is larger than ever.

The institutional LPs and funds of funds we talk to are fixating on the repeatability of an investment thesis and how this approach performs during different economic cycles. As such, GPs are using data to objectively prove the effectiveness of their strategy and differentiation, while proactively providing sensitivity analysis on historical investments to preempt LP questions and concerns.

As you might expect, GPs that struggle to consolidate data across their operations have a hard time bringing the storytelling to life in an unbiased manner. On the other side of the coin, we’re seeing GPs use a lot more data to understand an LP’s preferences, historical commitments, and exposure, so they can be specific when positioning the fund as complementary to existing allocations. Amidst generally good returns across the board, portfolio construction must achieve another level of detail to provide the diversification LPs require, and GPs need to communicate the puzzle piece they represent.

2. Have there been any marked shifts in LP interest in emerging managers?

Absolutely. Emerging managers are almost seen as a unique asset class, which represents a magnified risk/reward profile beyond the traditional dimensions of geography, sector, and so on. For many LPs, this is a good way to avoid allocating more capital to the middle of the pack and gain access to big upside potential.

We’ve also never seen this volume of spin-off fund managers who leave very established funds to execute on a niche thesis because they think they can do it better. As we’ve all witnessed, DeFi, blockchain, and crypto are leading the way here. We’re also seeing a breadth of new managers coming from hedge funds or former executive roles at recently exited tech firms with a far more progressive and data-driven approach to investing, which is considered novel by the majority of LPs and has become a new driver of allocation decisions.

3. What are the key underrated best practices for fundraising in the current environment? How does that vary between the LP and GP perspectives?

Investor demographics and preferences are changing, especially with the $30 trillion in inheritance moving to millennials by 2030. If the everyday investor wants to know how their portfolio is performing, they open an app on their phone while walking to lunch and have real-time visibility. We have to assume the GPs that can close the gap between that experience and private capital markets (static, opaque, quarterly, and so on) will do a much better job courting LPs.

We work with firms to bring an analytics-driven, consumer-grade experience to the forefront of the fundraising process—think visualized cap account statements and fund and portfolio performance dashboards the user can slice and dice. As a result, most of these GPs over delivered on both fund targets and timelines, despite peak pandemic conditions. 

Another key factor relates to the concept of “feedback loops,” in which a firm can establish digital surface area they can measure, such as an LP portal or virtual data room (VDR) that tracks user activities and behaviors. Which LPs are engaging the most with what we’ve provided? Are there patterns in general LP engagement we can use to make our communication more relevant? Feedback loops are common marketing and advertising principles, and GPs are now finding a lot of leverage here.

4. What are the top technical challenges in fundraising software tools—for example, around security—in this environment as opposed to in the past?

A tool for every team (IR, investing, accounting) is very common in the industry today. If an LP has a question on their commitments, a specific portfolio company, or general fund performance, it’s challenging for the IR team to provide a timely response, as they scramble to check three or more sources and synthesize the information.

This friction permeates into the fundraising motion. The simple act of sending a fund announcement email blast to a select audience typically requires hours, not minutes, and entails a range of sensitive data and the risk of high-stakes errors.

At the risk of getting too technical, a simple best practice is connecting your customer relationship management tool with a mass emailing tool to accelerate basic communication at scale, while keeping data housed in secure environments.

5. Which trends have surprised you the most among your clients’ usage or concerns in 2022 thus far?

There is a classic tension between the old and new guard in PE and VC; where the old guard is content with the status quo, and the new guard is frustrated with antiquated approaches, as measured against other aspects of life.

Those that are familiar with concepts such as early adopters, early majority, late majority, and laggards know the main challenge is predicting where society, or industry at large, is on this curve.

When the pandemic started, it accelerated a wide range of digital transformation trends. Many thought this velocity of change would normalize a bit, but we’ve been sincerely shocked at the volume of firms that are rethinking how they do things and the pace with which they are executing sweeping modernization efforts.

We believe the private capital markets industry is “crossing the chasm” as it relates to technology and digital transformation, and the landscape will change more in the next few years than it has in the last 20.