A few weeks ago, I completed a first close for Fairbridge Park, a new fund that I started in June last year. I prepared for the process by speaking with my former employers, other fund managers, and reading / listening to the stories of other founders. I found one-on-one meetings to be candid and insightful in a way that public information wasn’t. Since many aspiring managers might not have direct access, I wanted to pay it forward by candidly sharing lessons from my experience.
Charity begins at home
- Support from family is critical: Fundraising for a first fund is most likely going to be a long and excruciating process. You will be tested on all fronts. I found out early in this process that my parents and girlfriend would be my primary source of support. I rediscovered the high level of vulnerability I had with my parents when I was a young kid. I believe that parents are particularly primed to support you because they (i) tend to believe you and believe in you when others (including yourself) do not (ii) can support ideas where logic doesn’t add up without offering clever alternatives, which usually carry the seeds for changing course (iii) are often direct and early beneficiaries when success is achieved so there is high alignment.
- Structure and a values system will carry you: An old mentor used to say, “the structures we build during good times will support us through bad times…”. Mine are faith and exercise. When I became desperate and reached the end of my capacity, I relied on faith to confront the crushing burden that “it all ends with me”. A conviction that there is a greater force beyond my human capability has kept me going in situations where I was ready to throw in the towel. Running has been an outlet for pent up stress, a chance to reflect, and maybe to just zone out.
- The story must add up: Fundraising is about storytelling. Most of my investors wanted to learn the why, why now etc. before investing time (if any) in fancy technical detail. The next step must be logical in terms of your vision, your life story, timing, your skillsets, and the technical details of your project. Most importantly, support from, an endorsement, and preferably an investment from former employers / partners is critical.
- Institutions deal with Institutions: This is an extension of the point above. Support from your former employer makes it easier for institutions to engage with your product. Often, I didn’t have sufficient inputs (investments, firm infrastructure, etc.) for institutional investors to run a process. A former employer can lend credibility e.g., through track record portability, provision of references, or resources such as working capital. I understand that this option isn’t always available. However, I encourage aspiring fund managers to invest time to build good relationships and even consider including current employers in the thought process for the new project. Charity begins at home!
It’s NOT personal
- Ghosters don’t have the means: As Americans, we tend to make casual statements we don’t mean — things like, do you want me to bring anything from the bar; let me know if there’s anything, anything at all, I can do for you. These gestures of politeness are perhaps an outcome of our increasingly sensitive culture. In many cases, the people making them haven’t clearly assessed their ability and capacity to help or the nature of the help. At the beginning of my process, I reached out to many people who had offered to help, and many ignored me. Initially, I felt hurt. Now that the business is operational, I have reconnected with many of them. I have learned that when people cannot follow through with promises, they are usually embarrassed to communicate directly. You must give them an out.
- Favors won’t be returned: In my previous role, I helped many aspiring fund managers by showing their presentations to family offices I know. I also helped many young aspiring investors who ended up in LP positions. Naturally, when I started my firm, I reached out to ask for help. Only a few responded. This was especially disappointing because I expected reciprocity. In general, I have learned that many people do not help to reciprocate the past, but to attain future benefit.
- You don’t have to be self-made: In many startup stories, there is persistence of the narrative of the self-made entrepreneur who doesn’t owe anything to anyone. I have found this narrative to be fantastical. No single person has all the resources, skills, and stamina required to start a business. My entire life has been a series of favors, sponsorship, mentorship from others, perhaps because I grew up poor and there was no alternative. Asking for help is hard because it places us in positions of vulnerability. However, allies can accelerate the achievement of key goals and can help to broaden our thinking for solutions to problems.
- You aren’t a priority: It took time for many of my investors to complete their process. While this business is my entire life, for many of my investors it’s a small, side project. I wish I had managed expectations with vendors, potential hires, portfolio companies better. Understanding this is especially helpful to avoid resentment, a loss of trust, and premature rejections. Desperate entrepreneurs run the risk of giving ultimatums to potential investors who then decline to invest because the timing is not right.
Capital is a means to an end
- Not all investors are for you: Fundraising is like Maslow’s hierarchy of needs. When the basics (food, shelter… capital) are not met, nothing else seems to matter. Cunning investors will smell blood and trade your inheritance for a bowl of soup. I made the choice to avoid certain investors where I didn’t find strategic alignment. I turned down a potential investor who aggressively wanted to trade capital for adjustment to key components of the fund’s thesis. While I turned him down, I asked him for introductions to people in his network with better alignment. He introduced me to someone who ended up investing. A few months into fundraising, I decided to stop pursuing institutional investors actively. In my experience, they demanded specific structures and parameters – team composition, fund strategy / size etc. that were difficult to accommodate. Navigating these compromises resulted in diminished coherence of and confidence in the original plan, and increased pressure to make key decisions in haste. I also encountered groups that either assumed I would or pressured me to invest only in minorities because I am black. Stick to your guns. Find investors who believe in the story as is, who understand the industry, and have capacity to stomach the timeline and risk.
- Investors are partners not customers: Managers who view investors as customers often subscribe to the philosophy that the customer is always right. This is not good strategy. Romantic relationships provide a better framework for manager / investor relationships. A partnership should be based on mutual respect, trust, and a balanced set of mutual expectations, met by both parties. As GP, your job is to communicate directly, succinctly, and transparently with your LPs. You should share with them things that are bothering you and explore how they can help you become the best version of yourself and deliver the first class return they signed up for. You must find people who are invested in your success, believe in you already, and are comfortable seeing you at your worst.
Other lessons learned
- Empathy: I have better understanding for why certain firms require members of their investment teams have operating backgrounds. I wish I had gone through the process of founding a business before I became an investor. Looking back, I would have loved to be more empathetic with entrepreneurs when evaluating businesses. My motives where pure, but I didn’t have the proper frame of reference. Starting a business is excruciating, all-consuming, and a very personal affair. It’s a feeling and experience that is impossible to simulate. A kind disposition towards an entrepreneur goes a long way!
- Don’t wait too long: If you have conviction and have received good training of the fundamentals there is no reason to wait. Waiting too long can complicate your ability to navigate the risk associated with starting a company. Additionally, the more institutional you become, the harder it can be to birth an idea that is original vs. a derivative of where you are coming from. Of course, you must be ready, but the idea of waiting in the queue for your turn mostly serves incumbents who are afraid of disruption.
I am extremely busy, but I am always happy to help others who are going through or contemplating embarking on this journey when time permits! Please reach out!