Touchstone Event Recap: Emerging Venture Capital and Private Equity Fundraising
Tuesday, May 22, 2018
Posted by: Lindsey Helman
The Emerging Venture Capital and Private Equity Fundraising event on May 8, 2018 drew a packed audience of 50-plus venture and private equity GPs as well as other investment professionals.
The event was moderated by Tim Cunningham, President of Touchstone Group, LLC, who co-sponsored the event with the CFA Society San Francisco. Touchstone raises institutional capital for venture capital and private equity funds.
- Courtney McCrea - Managing Director of Weathergage Capital, a fund of funds investing in growth and venture.
- Sean Engel - Managing Director of Top Tier Capital Partners, a fund of funds investing in venture
- Inigo Garcia - Senior Investment Director at Cambridge Associates, a prominent institutional investment consultant
- Kaushal Amin - Director, Private Capital Investing of Ascent, the multifamily office arm of US Bank.
Case Studies - The discussion centered on three hypothetical case studies that each described a number of critical issues that venture capital and private equity managers encounter when raising capital. The ensuing conversation encompassed these insiders’ views of the factors governing institutional venture capital and private equity investment commitment decision-making. The lively give-and-take among the panelists, audience and Mr. Cunningham elicited candid and contrasting views that illustrate a diversity of opinion in making venture capital and private equity commitments. No answer was 100% right or wrong. What was acceptable to one allocator may not have been acceptable to another.
Manager Selection - Overall manager selection criteria was discussed with specific reference to the team, strategy and track record of the fund under consideration. Three of the four panelists singled out team as as the most important proxy for future success, with team dynamics and maturity as important details to review. One panelists was most attracted by very high past returns, but also conceded that the team was critical to any investment commitment.
First Close - There was a discussion of what is known as first-close risk—that is, the risk a fund will never get to a first-close and actually be in business. The panelists said sometimes they might “anchor” a first close and, if their commitment was large enough, might even ask for special terms to do so. One panelist introduced the novel idea to seek an 8% hurdle rate in venture capital funds —a term typically associated with buyouts, not venture.
Other Issues - Other topics covered included the relative attractiveness of sector vs. diversified funds, the importance of realized returns in assessing a track record, and the attractiveness of a spin-out fund from a larger group. Several people in the audience asked "what constitutes a meaningful GP contribution?" There was consensus that the absolute size of the contribution was less important than the concept of the contribution representing a meaningful percentage of the general partners’ net worth. Everyone seemed to agree that a large contribution of say, 40%, would cause misalignment between the LPs and GPs.
Final Words -At the end of the discussion, the panelists were asked to give the most important advice they could give to emerging managers. Two panelists said GPs should continually ask themselves how they can build long-term relationships with LPs. Another panelist wanted prospective GPs to understand their fund wasn’t going to be attractive to everyone, and to take a “no” with grace and simply move on. Otherwise, GPs can end up “spending a lot of time with the wrong LPs.” The panelists cautioned GPs to “not hide your track record”, and tell the LP as clearly and succinctly as possible how you make money. The final words of advice were that LPs are exceedingly busy these days and may not respond right away. So “follow-up, until you hear a no. Persist.”