How Better Investor Information Translates into Faster Fundraising
By Paul Hartzell – Senior Vice President, Merrill DataSite®
Private equity fundraising is finally on the up. But there’s still a huge gap between funds that are closing fast and those that are on the market for years. Paul Hartzell, senior vice president of Merrill DataSite, explains how online tools can accelerate fundraising.
At long last, there is light at the end of the tunnel for the private equity sector. Latest figures from PitchBook show a 43 percent increase in fundraising in Q1 of this year, compared to the end of 2010 – suggesting that investors are beginning to return in significant numbers.
Look beyond the headline trends, however, and some interesting divisions emerge. While overall funds raised are up, much of that investment is linked to interim closures. And even though the average time to close has dropped from 20 months at the end of 2010 to 16 months amongst the funds closed in Q1 2011, there are some funds out there that are able to shut their doors after just six weeks.
The question is, what are these equity houses doing differently to achieve such rapid results?
I believe the answer lies with an old investment truism: the only thing that really translates into faster fundraising is better performance.
Track record and transparency
We’re now at a stage where funds are beginning to show reasonable exits again – unlike even a couple of years ago, where recent performance seemed best left hidden. With investors understandably cautious, it makes perfect sense that they are attracted to those companies that have achieved the best results.
But interestingly, it’s not just the numbers that matter: it’s the way they were achieved too. Investors want to know more about the approach the fund managers took to deliver results in the downturn – and the best are able to tell that story.
This is something we’re seeing across the equity market. Where in the past quarterly reports would consist of little more than company names and addresses, today they feature detailed analysis of the activity and profitability of each individual business in a portfolio.
In a fundraising scenario, this degree of transparency serves to satisfy investors not only about where their money will be going, but also how the fund will work to ensure the best possible returns.
Cut the paper trail
Of course, the problem with generating this transparency is that those already lengthy pitch books and information memoranda will have to be even longer. That makes them more time-consuming to create and more expensive to distribute. In addition, the information they contain can be out of date within weeks – and certainly by the time the fund is closed.
That’s why more innovative fund managers have already chosen to cut the paper trail, with its associated costs and inflexibility. Instead, those at the forefront of fundraising are moving to online platforms, like DataSite, to get a detailed amount of data to the right people much more quickly.
Critically, a tool like DataSite also enables fund managers to increase the quality of their information. For example, I’ve seen some equity houses add video content, such as interviews with sector specialists to explain their strategy. Others take advantage of the speed at which information can be distributed to provide regular updates on market movements or prior investment performance.
Prospect to investor – faster
Moreover, done properly, an online ‘pitch book’ can also allow more proactive management of prospective investors. When you physically post a book to the other side of the world, it’s hard to be entirely sure if it has reached the right person. And even if you know that the right person has it, you don’t know whether they’ve actually looked at the information inside.
DataSite, however, lets you track exactly which pages each potential investor has looked at – meaning you can gauge their level of interest and understand their priorities. That means fund managers can then reach out directly to those prospects, in a highly targeted way, and even prepare for the questions they may ask – providing a level of reassurance and insight that can convert prospects to investors at a greater speed.
About Merrill DataSite
Merrill DataSite is a secure virtual data room (VDR) solution that optimizes the due diligence process by providing a highly efficient and secure method for sharing key business information between multiple parties. Merrill DataSite provides unlimited access for users worldwide, as well as real-time activity reports, site-wide search at the document level, enhanced communications through the Q&A feature and superior project management service – all of which help reduce transaction time and expense. Merrill DataSite’s multilingual support staff is available from anywhere in the world, 24/7, and can have your VDR up and running with thousands of pages loaded within 24 hours or less.
With its deep roots in transaction and compliance services, Merrill Corporation has a cultural, organization-wide discipline in the management and processing of confidential content. Merrill DataSite is the first VDR provider to understand customer and industry needs by earning an ISO/IEC 27001:2005 certificate of registration – the highest standard for information security – and is currently the world’s only VDR certified for operations in the United States, Europe and Asia. Merrill DataSite’s ISO certification is available for review at www.datasite.com/security.htm.
As the leading provider of VDR solutions, Merrill DataSite has empowered nearly 2 million unique visitors to perform electronic due diligence on thousands of transaction totaling trillions of dollars in asset value. Merrill DataSiteVDR solution has become an essential tool in an efficient and legally defensible process for completing multiple types of financial transactions.
Learn more by visiting http://www.datasite.com today!
For more information, please contact Merrill DataSite:
Tel: 1-888-867-0309; Email: [email protected]; Web: http://www.datasite.com
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