UK: Differentiating Your Fund: Stand Up If You Don't Stand Out

Last Updated: 12 June 2018
Article by Matthew Craig-Greene

Despite the existence of some genuinely distinctive individuals in the private equity industry, the difficulty of distinguishing private equity funds from one another is well-trodden ground. Indeed, the notion has become so accepted that it even has its own acronym, "JAMMBO": Just Another Mid-Market BuyOut fund.

So, in an industry rich with strong personalities and charismatic characters, why are the firms they founded often so bland? And why do so many GPs imagine that claiming the same "differentiators" as all of their peers will somehow make them stand out? As an identical twin, this is a subject close to my heart...

In this article, we will look at three of the most common positioning pitfalls and provide you with some simple strategies to help you take the steps (and sidesteps) to avoid them.

Pitfall 1: The same difference

When on the fundraising trail, it can be tempting to trot out the latest buzz words or, worse, to ape the overheard elevator pitch of Successful Buyout Fund VII, as shared by an enthusiastic placement agent over drinks in the Hotel Okura lobby.

The result? That's right: you end up all making identical claims and being just as indistinguishable as before. What a disaster.

The sidestep:

Make sure you tell your story, the good and bad. Due diligence will reveal the truth and you are just wasting LPs' time (not to mention your own) if you try and make your fund out to be something it is not.

And make sure you strip out the clichés from your pitchbook and your fundraising patter. For example, try to avoid the following:

  • "proprietary dealflow" – this is a classic and now has arguably no meaning, whatsoever. Instead, provide specific examples of how your network has helped you source deals and own up to having participated in the odd auction or two (and explain, if applicable, how you have managed to win without overpaying);
  • "top-quartile" – ever since the dawn of industry data (and, likely, well before), probably three quarters of the private equity market has claimed to be top-quartile. And with judicious manipulation of all the parameters, almost everyone is. Instead of declaring your performance relative to a pool of arbitrarily selected peers, state your performance clearly and concisely and provide access to the top line data from which it was calculated; and, finally (although there are many more!),
  • "hands-on operational expertise" – the go-to riff for GPs fumbling to explain that they generate returns through more than financial engineering. Popularised by EVERY fund since the financial crisis, it's hard to hear with a straight face. For most GPs, it is much better to instead provide examples of how you have helped clear the runway for a strong management team to improve performance. We know YOU didn't really do it all.

Pitfall 2: Trying to please all the people, all the time

Successful GPs are so focused on getting investors to say "yes" that they forget the importance of getting them to say "no".

Every minute spent with an investor that won't back your fund is a minute you could have spent with one that might, or getting on with the business of investing, yourself.

The sidestep:

Before each meeting, make sure you are just adapting the authentic story of your fund to highlight the most relevant areas. If you are going beyond that and are contorting the facts to tell the story you think the LP wants to hear, desist:

  • of course, lead with your strengths, but make sure you are upfront about anything an LP will discover in due diligence. If it is going to be a "no", for goodness sake make sure to make it a quick one;
  • ahead of a meeting, try to understand an LP's preferences as much as possible and consider how what you do is actually a match. Focus on providing real evidence of this, but if it is clear you are not a good fit, don't force it; and, finally,
  • do not claim to be something you are not. You won't be able to substantiate such claims and this will be discovered in due diligence.

It is always better to focus on what you are and articulate that in as distinctive a fashion as possible. By doing so, you will be far more convincing and credible.

Pitfall 3: Assuming the ostrich position

Of course, articulating what makes your fund different is impossible if you have never dedicated the time to think about it. With so much else going on, it can be tempting to ignore branding and communications, but a GP that has buried its head in the sand shouldn't be surprised if its bellowed pronouncement "our performance speaks for itself" fails to reach the ears of potential investors.

The sidestep:

Take the time to ponder and record:

  • why you started the firm;
  • what you have achieved so far (for your investors, for your portfolio companies, for your staff and for your community); and
  • what you hope to do next.

If you need help with this, please let me know, but you can get the basics done on your own, in as little as an hour. Knowing what you stand for is the first step in standing out.

In Summary...

In a market saturated with similar funds, LPs want differentiated offerings, but there are no shortcuts: copying a competitor is the worst possible strategy for demonstrating uniqueness.

Remember, in the battle between bland and brand, there is only one winner, so:

  • steer clear of tired cliché;
  • be brave and tell the whole truth; and
  • take time to articulate what you stand for

If you do all that, you'll be several steps ahead of most of your peers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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