How do emerging and start up hedge fund managers succeed in the capital raise race? The ramp up is winding, long, potentially quite profitable, and filled with mistakes and “oops” moments that can cost millions in potential assets raised. Try to avoid these seven paths:
Oops #1: “I Have Great Performance and Don’t Need a Marketing Plan.”
Most emerging alternative funds and start-ups – those typically with less than $250 million in assets under management – don’t have a thought out and written down marketing plan. If this is your firm, you are not alone: 80% of hedge funds do not have a documented marketing process, according to Bryan Johnson of Johnson & Company.
Johnson & Company provides advisory services to start-ups, emerging and alternative investment managers.
While absolute returns – and a management pedigree – may attract some attention in some databases, they won’t necessarily find your ideal prospects or close sales.
Your marketing plan should provide specific details for the who, what, when, how and why. The “who” includes who your ideal prospects are – their persona, firm type, demographics, and pain points. The “what” may include what sales methods and marketing content you use to discover, educate, and move prospects through the sales pipeline. And the “how” part of the plan may include specific detail on sales and marketing tactics.
Oops #2: “I Don’t Need a Marketing Budget.”
Many emerging and smaller alternative funds without a marketing plan also don’t have a marketing budget. Why budget when you don’t have a plan? Well, it’s a pathway to failure.
Raising capital costs up-front money. Funds that seek to outsource sales to a 3rd Party Marketing (3PM) firm are not typically commission-only. The cost of a 3PM engagement may include competitor analysis, due diligence, positioning, consulting, and travel. These often-significant financial responsibilities are paid for by the fund. At the end of the fiscal period, you get what you pay for, and if you expect a commission-only relationship, expect to not pay commissions, because you most likely won’t be raising much money.
Few funds meet the stringent standard of 3PMs: according to Mr. Johnson, “Only 1 out of every 275 sub $250 million AUM hedge funds establishes a 3PM relationship.”
Similarly, alternative and start-up funds who work with a PR agency or an inbound marketing agency can expect capital outlay for time, and/or content delivery and distribution.
Oops #3: “I Always Focus on the Perfect Prospects.”
“Most start-ups and smaller hedge funds waste valuable time and resources “chasing institutional unicorns,” said Mr. Johnson. “Discussions about institutional allocations and small funds are largely noise.”
Institutional investors, pension plans and endowments have requirements on asset size, performance profiles, and years under management that smaller and startup funds don’t have. Smaller funds, despite tremendous track records and sterling stories, just won’t make the cut.
Oops #4: “My Message is Both Clear and Compelling.”
Well, maybe not. What’s clear to fund managers may be Greek to prospects.
Does your investment story address the issues your prospects want addressed? Does your message concisely state how you seek to mitigate risk? Is your marketing content succinct, informative, and consistent in message, look, and feel? (If you don’t have a marketing budget, do you even have content beyond a pitch book?
Oops #5: “My Fund Sells Itself.”
Many emerging managers may make the mistake of thinking that their fund’s style is so special, their back-tested and actual returns so outstanding, and their alpha so awesome that they don’t need to market their fund.
But…with more than 11,000 hedge funds in 2015 (Source: eVestment) how can any one fund promote itself to the right investors or intermediaries at the right time? Reality check: don’t expect your fund to be the fund whisperer. Managers have to talk about their funds, or work with others who will. Silence is not golden. High net worth investors and intermediaries need to be educated why about why they should invest in your fund. They need to be convinced, so they have trust and have conviction in you. A website, fund fact sheet, white paper(s) all help build trust over time – as do speaking engagements, social events, and other forms of visibility.
Oops #6: “My Current Clients Can’t Help.”
Perhaps your current clients – friends, family, business colleagues, and early allocators – are the best natural source for additional allocations, and for referrals. Many emerging funds have discounted the value of their existing investors. Have you, for example, established a monthly or otherwise regular email calendar to update, educate, and inform your existing base of investors? Do you take the time to continually build a solid relationship in person, over the phone, via social media, or with email? Do you explicitly ask for referrals?
Oops #7: “I Can Close in One Touch.”
A few start up managers expecting too much, too soon, but of course that’s somebody else. Building trust is built over time. Creating content takes time. Getting noticed is not an overnight experience. Raising assets comes over the long-term.
According to the “Marketing Rule of 7,” a prospective investor needs to hear and/or see your message at least seven times before they act. (I’ve heard at least seven times that Hollywood studio chiefs developed the Rule of 7 in the 1930s.) The 20th Century Fox, Columbia, MGM, Paramount, RKO, and Warner Brothers guys discovered that they needed to touch audiences seven times for moviegoers to be made award of and interested in seeing the latest release. Old rules still work.
So how many touches does it take to bake the sales cake? While Hollywood sold the story, a Salesforce study in 2015 found that:
2% of sales were made on contact number 1
3% of sales were made on contact number 2
5% of sales were made on contact number 3
10% of sales were made on contact number 4
80% of sales were made between contact number 5 and 12
And just what is a “touch’? It could be any combination of sales-oriented phone calls, emails, in-person meetings, golf outings; and marketing-centric activities like but not limited to web pages visited, blog posts read, eBooks downloaded, Twitter posts clicked on, and analyst articles reviewed.
Do you have a strategy for how you will do seven touch points or more?
One more question: Do you know enough yet about how content-driven inbound marketing can help emerging investment managers increase assets under management? Take a quick look at this quick quiz: