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.

A traditional crm was built for general ‘customer’ scenarios

Software platforms have made the world a better place by making work a better place. Indeed the world is better off when people enjoy their jobs even marginally more, and workplace applications on big CRM platforms like have done that and much more.

But the potential that platforms like these offer presents diminishing returns: once the platform provider has engineered too many industry specific components into its platform, its usefulness for other industries begins to be threatened, and with that so do the usefulness of the component tools built into the platform.

So it is with the CRM category that has defined: it is generic enough to work for many industries, and yet still offers the potential for others to round off the edges and nail more vertically-oriented and extremely tailored software solutions.

Private capital markets are actually a great demonstration of this dynamic. Where generic CRM platforms simplify — appropriately so — to assume there’s a business, a customer, a sale, and service of that customer, there are a few industry-specific pieces that are missing.

Take for example, that investors become customers by investing through legal entities the GP raises. It’s a subtle but important nuance that just doesn’t make sense at a platform-as-a-service level (because it’s overly complicated for a simple one-time sale that many industries require), but which can easily be added without 10 years or software engineering. Once provided, the rest of the platform’s components become tremendously powerful again and you’re set to take over the world.

As a traditional CRM in our pillars methodology, these nuances must be present to properly account for investors in these legal entities, potential target companies and which are owned by these entities, the context of all interactions with these parties (as well as the appropriate overlap, ie co-investments), and how you’re arriving at finding these opportunities on both sides of the equation, such that you’re able to piece together what’s effective and what’s not. Not just because we say so, but because these are the very relationships and data that are key to the motivation behind a CRM in any industry.

It’s critical, too, that the valuable publicly-available information that helps to enrich CRM systems and save users painful steps of entering it themselves is fully-integrated at the platform level.

Again, look no further than the 3,000+ pre-built integrations that — the creator of the CRM platform concept — has at a platform level to do so, and which only exists by way of holding just short of overly-specifying certain industry workflows that would present challenges to properly integrate.

Stakeholder reporting and communication (investor relations) draws on a range of datasets

The traditional “customer service” model of CRM systems once again makes overly-simplified assumptions about the customer relationship when applied to private capital markets.

In fifteen years I personally have yet to hear the terms “warranty” or “service call” in this market because it’s just not the same. But make no mistake, as uncomfortable as it may be to say aloud, customer service is more important now than ever and it’s constantly happening; the industry is, after all, considered to be a financial “service”.

As it turns out, that service is primarily information-based — it’s driven by data and takes the form of reports and analysis that drive decisions, and then end up again in investor-facing reports and analysis.

The foundational elements of a private capital markets CRM must be built such that they accommodate this data (like we discussed above), but so too that it can accommodate additional supporting data that investors (customers!) need in the context of service.

Oftentimes this supporting data — financial metrics and time-based values, for example — is believed not to meet the traditional definition of CRM and the natural thought is “well, better do this in Excel!”.

While I happen to believe Excel is still the greatest software application ever built, its introduction to this value chain we’ve discussed herein actually creates the problem many firms suffer from: key data needed to provide customer service (again: effectively the entirety of a firm’s reports and analysis) is now in disparate systems and detached.

Both of those dynamics are important and distinct: not only is this supplemental data disparate, but when brought together there is no logical association that can be made between the two data sets.

Allow me, then, to make the point very simply: not only can this financial and time-based value data (you may be thinking about is as “portfolio monitoring” or “accounting”) be a part of a CRM, it is arguably the most important part of a CRM because it’s at the core of what providing service to the customer entails — information that comes out of data!

Firms need a digital method to engage stakeholders (ie investor portals)

Investor portals are not new; in fact, for many of us — including myself — they conjure up horrifying nightmares in which we’re aimlessly guessing at folders to find the newest document we need.

So in lies the opportunity: not only have the portals we’ve come to hate not simplified the process of acquiring information, they’ve failed to create an entirely new experience that is “customer service” driven.

To be fair, this is not a B2C market where you’d be long out of business for not having focused on customer service and thus the customer’s technology-driven experience. But don’t expect to be around too much longer if you aren’t thinking about this shift.

Today’s institutional investors increasingly expect this same consumer-like experience, and a massive opportunity is being missed by not providing it. It’s not about providing them the experience they desire; it’s more about the ability to measure engagement that is had in return.

Put simply: what’s keeping the market from providing this experience is the availability of the information that’s required to create the service that provides the experience.

If you’ve hung in this long, you know that by focusing on your CRM, you have the data that’s required to manage the customer relationship and the technology-driven experience through which that information is shared to create a differentiated and opportunistic customer experience.