The pros and cons of choosing a placement agent for small funds
It would make life a lot easier for emerging managers if they could outsource the entire fundraising process. But can you?
Empirically, few small emerging investment managers hire placement agents, particularly in venture capital. And even the firms that hire a placement agent almost always still have to run their own internal process.
Homebrew doesn’t report hiring a placement agent for their Fund I, despite (or because of) a well-pedigreed team. Greycroft in 2010 also had an experienced team, but didn’t either. Instead, they hired an outside assistant – not a placement agent – to help in the process.
As Greycroft said in an essay: “Since we were a small fund, it would have been overwhelming to us and our small administrative staff to set up the meetings and follow ups, fill out questionnaires (which for the most part fall into a dark hole), and respond to the myriad of questions which occur during the due diligence process. Although not a placement agent charged with raising the money, this person was an important and critical member of the team and was a key factor in helping us to keep track of where we had been and where we were going – ‘If it’s Tuesday, it must be Belgium.’ ”
Greycroft’s results give you a sense of the complexity involved: The firm said it had 515 contacts with potential LPs; roughly 250 passed for various reasons and 100 were non-responsive. (Read more...)