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As limited partners (LPs) invest capital with larger, more influential firms, mega-funds have added pressure on emerging and first-time fund managers to be considerably more thorough in executing private equity due diligence. In this fiercely competitive environment, general partners (GPs) who exceed at articulating their unique fundraising approach—from intent to pricing—will gain an edge in capturing the attention of potential investors.

“If you're buying a private equity fund, you're putting trust in a team, the process they laid out, the network and track record they claim to have,” says Hilary Wiek, PitchBook's Lead Analyst of Fund Strategies and Performance. “Because it’s a trust-based business, GPs must diligently prepare so when they go to market, they’ve figured out their portfolio end-to-end. All they need to do is execute."

PitchBook's fundraising guide for emerging managers  

Wiek’s recent fundraising guide for emerging managers provides an essential roadmap for private equity fundraising and pitching, anchored by three categories:
 

• Know who you are
• Know your customer
• Be prepared

The report’s “P” structure, utilized in business communications and reflected below, highlights a set of LP considerations for vetting investment opportunities with a checklist, plus key fundraising considerations for GPs. Wiek notes that there is no one right way to answer the questions—instead, the framework lends itself to a bottom-up approach informed by what the GP hopes to accomplish in the addressable market. 

A fundamental component of all private equity fund structures and fundraising stages is the private equity barometer. Barometers assist GPs throughout the private equity due diligence process by informing them of variabilities within the PE environment. As managers stay up to date with variance on quarterly returns, barometers not only shape fund strategy but help to augment it to suit the market.
 

Private equity fundraising checklist  

The PE fundraising checklist below is meant to provide general partners with a roadmap for raising private equity funds, covering everything from market research to customized pitch decks and contract negotiations.

Define your unique fund strategy

Do your LP due diligence

Commit to limited partners

Key fundraising considerations  

As a supplement to the checklist above, GPs can impart a more in-depth structure to their PE fundraising efforts by leveraging Wiek's six additional key considerations that include:

People

At this foundational stage, GPs will need to incorporate actions summarized in the "Define your unique fund strategy section" of the checklist.  As most emerging GPs will be proposing a blind pool—asking investors to commit without knowing the makeup of the fund—LPs will consider all aspects of the GP’s business plans for running their company.

This includes answers related to firm composition:
 

• Are the right team and leadership dynamics in place for every deal stage?
• Will a single person or a team of industry specialists manage deals?
• Where outside ownership comes into play?

Philosophy

Following market research, this phase builds upon the first checklist measure to address the GPs chosen market. The philosophy step should involve understanding the market opportunity being addressed by the GP, and how they plan to leverage it. GPs must therefore formulate a clear philosophy on their investment strategy in order to gain the trust of LPs.

During this step, LPs will be asking:
 

• What is the GP’s value add?
• Why is this the GP’s chosen market?
• Are they well-positioned to convince potential portfolio companies their fund will outperform other sources of capital?

Performance

This can be a difficult step for emerging managers, as pointing to previous PE fundraising performance metrics is tricky when that track record is limited. The most important thing emerging managers can do here is draw attention to any deals completed by the current team. GPs should:
 

• Be forthcoming about their experience to gain the investor’s trust
• Refrain from taking credit for deals that occurred in a different system
• Frame past mistakes as lessons learned to highlight strategic changes

Process

The GP should be capable of articulating in detail how they intend to source and close deals, manage portfolio companies and co-investors and mine future opportunities. This includes:
 

• The profitable exit of companies and deal flow 
• The manager’s established network 
• Team roles 
• ESG strategy

The last point is particularly important since the LP community is increasingly interested in whether the business plan incorporates an actionable ESG strategy. According to PitchBook’s recent ESG reporting, ethical and sustainable investing is top-of-mind for a rapidly growing number of LPs considering investment opportunities.

Portfolio construction

Portfolio construction aligns closely with the due diligence checklist step and is all about how a GP has built their private equity fund structure, especially as it pertains to their outlined strategy and investment philosophy.

During this step, GPs should demonstrate the following:
 

• The size of the fund
• How it will diversify
• Its positioning relative to competitive funds 
• What sectors will be invested in
• How quickly capital will be invested

Emerging managers should keep in mind that LPs will have a number of questions at this stage. Make sure to prepare not only answers to their questions about the PE fund’s structure, but also the reasoning behind those answers. 

Providing comparable performance data through custom benchmarking and peer groups based on industry, mandates and fund size will help the LP gauge the fund’s value within the market.

Pricing

This technical stage encompasses the final checklist progression and entails hiring an attorney to create a fund document and registering the fund as a business with the SEC. The GP must also take the following steps:
 

• Acquire a third-party private placement agent or look for targets using an investment database. Sometimes called third-party marketers, these agents facilitate investor introductions and pitch targets.
• Apart from setting terms and fees for limited partners agreements (LPAs), GPs  must have an understanding of the economics behind fund structures and variabilities of the 2% annual management fee.

A final note for on PE fundraising: Know yourself  

It’s important to consider that private equity structures, frameworks and day-in-the-life experiences of fund managers vary greatly depending on the GPs chosen strategy. Nevertheless, the PE fundraising checklist above and its corresponding considerations are formative steps that bolster and anchor an amalgamation of business models. Wiek reiterates that these measures not only lay the groundwork for how to raise a private equity fund but help GPs pinpoint and articulate their unique value add in the market.

Explore PitchBook for fundraising