How Private Equity Funds Raise Capital and Source Deals with Social Media

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David Teten
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How Private Equity Funds Raise Capital and Source Deals with Social Media

  1. 1. © 2016 David Teten. More at teten.com http://www.flickr.com/photos/roblee/133498854/ The Virtual Handshake: You Found Your Spouse Online, Why Aren’t You Finding Your Investments Online? http://www.flickr.com/photos/23905174@N00/2438005410/ David Teten HOF.capital / @HOFcapital teten.com / @dteten New York, NY
  2. 2. Intro Social Media Network Next Steps © 2016 David Teten. More at teten.com One-to-One Don’t Take Notes! Download these slides, sign up for updates, and get more free resources at: teten.com/PE-social For research specifically on sourcing investments, see teten.com/deals
  3. 3. Intro Social Media Network Next Steps © 2016 David Teten. More at teten.com One-to-One David Teten • Managing Partner, HOF Capital • Previously Partner for six years, ff Venture Capital, one of the best- performing seed- and early-stage VC firms in the U.S. • Previously serial entrepreneur and Bear Stearns technology investment banker • Advised clients such as Goldman Sachs Special Situations Group, Icahn Enterprises, LLR Partners ($1.4b fund), Birch Hill Equity Partners (C$2B fund), and other institutional investors • Harvard MBA, Yale BA • Teten.com / @dteten / info@teten.com
  4. 4. Intro Social Media Network Next Steps © 2016 David Teten. More at teten.com One-to-One • Introduction • One-to-One Media • Social Media • Capital and Deal Network • Next Steps http://www.flickr.com/photos/23905174@N00/2438005410/
  5. 5. Intro Social Media Network Next Steps © 2016 David Teten. More at teten.com One-to-One Study of 2,501 portfolio managers of 1,648 actively managed equity funds that specialized in aggressive growth, growth, or growth and income stocks between January 1990 and December 2006 Source: The Small World of Investing: Board Connections and Mutual Fund Returns; Lauren Cohen, Andrea Frazzini, and Christopher Malloy, 2008 Connected Holdings=Stocks for which managers had the strongest connection to senior officials (same school at same time with same degree) Excess return=total gain minus the Treasury bill return Investors earn higher returns by investing in people they know. Mutual Fund Managers’ Excess Returns in Companies Run by College/Graduate School Classmates vs. All Other Companies
  6. 6. Intro Social Media Network Next Steps © 2016 David Teten. More at teten.com One-to-One Social media technologies are pertinent throughout the investing cycle. Investing Cycle Use of Social Media Raise capital • Identify potential investors and get introduced • Solicit past investors in comparable funds Originate investments • Identify and reach out to relevant people • Become a magnet for relevant opportunities Due diligence • Review professional and personal lives of management • Talk with firm’s network: customers, competitors, suppliers Negotiate Deal • Gain insight into counterparty’s negotiating style, motivations Improve operations • Recruit “A” performers • Accelerate sales and marketing Exit investment • Identify and more effectively negotiate with acquirers How Investors Are Using Social Media
  7. 7. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Introduction • One-to-One Media • Social Media • Capital and Deal Network • Next Steps http://www.flickr.com/photos/23905174@N00/2438005410/
  8. 8. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Sourcing the Deal, Merrill Corp./The Deal, May 2010 Professional relationships drive the great majority of deal flow. What is the most important process your company's internal group uses to locate possible deals?
  9. 9. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Acquirer/ Investor Angel groups using Gust[i] Blackford Capital[ii] TA Associates[iii] Highland Capital[iv] AlliedSignal[v] Investing focus startups lower-middle- market growth companies growth companies synergistic businesses Profiled initially 20,850 1,394 NA NA 550 Target Selected 1,315 261 8,000 10,000 [vi] 190 Met 1,047 20 750 1,000 NA Negotiated with NA 14 NA NA 28 Detailed due diligence 577 20 NA NA 17 Acquired/ invested 541 3 10 to 12 10-20 10 Deals as % targeted companies 33.5% (2.1% of submissions) 1.1% 0.1%-0.2% 0.1%-0.2% 5.3% [i] Available at http://angelsoft.net/a/venture-valuation , as of twelve months ending March 17, 2010. [ii] 2009. [iii] Rudd, Amber. “A Kind of Magic.” Corporate Financier, October 2006. [iv] Economist, Global Heroes: A Report on Entrepreneurship, March 14, 2009., p. 9. “Targets selected” figure indicates number of business plans received. [v] Bruner, Robert F., Applied Mergers and Acquisitions. New York: John Wiley & Sons, 2004., p. 183, as of 1996-97. Closing one deal requires sourcing 80-100 deals. Investment Search Process (# Companies)
  10. 10. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Firms typically fail to exploit their internal and external networks. Forrester Research/David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) • Knowledge not readily searchable • Knowledge not retained when employees leave • Relationships not visible • Relationships primarily tied to colocated people; people in other offices can’t leverage that knowledge and those relationships • Millennials expect and embrace social technologies, and are disappointed and less productive when they are missing Failures of Existing Corporate Networks
  11. 11. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Searchable • Crosses boundaries of time and space • Passive presence • Ease of forming groups • Reduced time and expense • Greater visibility Benefits of Online Networks http://www.flickr.com/photos/uaeincredible/3333223048/sizes/o/ Online networks are a more efficient way to get business done.
  12. 12. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Introduction • One-to-One Media • Social Media • Capital and Deal Network • Next Steps http://www.flickr.com/photos/23905174@N00/2438005410/
  13. 13. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com http://www.flickr.com/photos/23439761@N03/3258313816/sizes/l/ Social media allows you to convert cold calls to warm calls.
  14. 14. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Why should I care about social media? • Social media is now #1 online activity for Americans • 74% of online adults use social networking sites • LinkedIn is increasingly popular, with 28% of adult internet users as members, up from 22% in 2013. The site continues to be particularly popular among college graduates, those in higher-income households and the employed. http://www.pewinternet.org/fact-sheets/social-networking-fact-sheet/ http://mashable.com/2013/08/15/popular-online-activities/#UyXmgunqU8qZ
  15. 15. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com But I don’t use social media, and neither do (most of) my co- investors, investment bankers, and portfolio executives! • The reality: you and your target investors are in the social media matrix whether you like it or not. • Your candidates search for you on Google before doing business with you. • You are already a member of gated online communities, which you may or may not be fully leveraging: your alumni network, your local “Moms” or “Dads” mailing list, your church/synagogue/mosque. http://www.slideshare.net/mzkagan/what-is-social-media-2005829 . http://www.flickr.com/photos/juggernautco/6440075075/lightbox/
  16. 16. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com 10-15% of the active VC population of 1,000 blog and tweet; some individual bloggers are as influential as entire groups of journalists. * Individual VC blogs http://www.blogmetrics.org/venture_capital Top VC Blogs (BlogRank), November 2014 Blog Title # Incoming Links (rank) Google PageRank VentureBeat 1 7 Paul Kedroskys Infectious Greed* 2 6 Redeye VC* 4 5 VC Café* 13 5 Xconomy Venture Capital Feed 1 6 India Business Blog 13 5 Web Strategy by Jeremiah 2 5 PEHub Blog 21 7 VC and Angel Investor Profiles 12 6 Union Square Ventures* 8 6
  17. 17. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Private equity funds are mostly unsophisticated in their use of the internet; MCM Capital is an exception. •Tools - Tools: website, Facebook, LinkedIn, weekly blog, RSS feed, email newsletter, email archive page, email signature - CRM system (Microsoft Dynamics), which automatically pulls in contact inquiries from site - Target terms for search engine optimization: micro-cap private equity fund, leverage buyout, Cleveland based private equity, lower middle market, leverage buyout firm, management buyout •Cost: - New website - Four professionals collectively spend 15-20 hours / week on social media outreach MCM Capital, a MicroCap PE Fund in Cleveland, OH →http://www.teten.com/blog/2010/12/05/how-a-small-private-equity-fund-uses-social-media-for-building-its-investment-pipeline-and-raising-capital/
  18. 18. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com MCM Capital has significantly increased sourcing via their social media presence. •Traffic - Overall traffic increased over 100% since site redesign 15 months ago •Deals - “Several CEOs have commented they have read our blogs and better understand what kind of partners we would be post transaction as a result of reading our investment perspectives and business best practices blogs. 60% of our overall web traffic today is a result of our blog driving users to our site. ” •Investors - Over 35 LPs have contacted them via Palico, Preqin, and their site MCM Capital Social Media Results July - October 2010 . http://www.teten.com/blog/2010/12/05/how-a-small-private-equity-fund-uses-social-media-for-building-its-investment-pipeline-and-raising-capital/
  19. 19. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Healthpoint Capital is a much larger fund investing significant resources into their social media presence. • $750m fund for the musculoskeletal sector — specifically orthopedics and dental • Weekly email to 14,000 people • Publish a small percentage of content that 5-person research team generates • Agenda: “make our website into the virtual Silicon Valley for our industry” Healthpoint Capital Blog, a Rare Private Equity Blog
  20. 20. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Best Practices in VC Blogging (written humorously, but still good advice) • Hi, I’m a tech VC on Twitter. I’m @xyzvc • My icon is cool. It’s a painting/cartoon/wacky photo. Shows that I’m hip and approachable. But when I meet with you, I’ll still crush your dreams. • I tweet about technology, but occasionally post personal stuff. Important to show I have a sensitive side and care about more than just making tons of dough. • I use # tags, sometimes as a funny form of emphasis. Kind of like a wink and a smile ;) #donttakethisposttooseriously • I love Twitter because I can broadcast my blog posts. Otherwise, no one would read them! I blog at xyzvc.com! • I tweet blog posts with advice on fundraising, customer acquisition, and company building. Usually, someone really smart has said it before and said it better. But I haven’t been in Hacker News for a while, so I figured there is no harm reinventing the wheel. • Retweeting is fun. It’s like a virtual high-five. I retweet the posts of my partners, coinvestors, and entrepreneurs I’ve backed. Oh, I also retweet posts from guys whose butts I’m currently kissing so that they will like me. I really hope @fredwilson retweets this… I’d get so many new followers! • My portfolio companies are the best. I will share so much of their good news with you it will make you want to unfollow me (unless you are a co-investor, in which case you will probably RT and add a #) • If a portfolio company is doing bad, no Twitter love. It’s like going to Disneyworld and trying to find Hercules or Mulan. It’s like they never existed. • I also tweet about the cool places I’ve been (via Foursquare and Gowalla), things I buy (via Swipely and Blippy), and the cool places I’m going to go (via Plancast). Hi, I’m a tech VC on Twitter (by Rob Go, NextView Ventures)
  21. 21. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com →David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) Case Study: Lower mid-market PE fund sourced an industrial deal via an online job board. • Hamilton Robinson, PE fund; invested in 40 companies worth over $1b cumulatively • Mark Riser (Darden 1994) placed ad in Darden Alumni site seeking C-level managers to back in MBOs • Riser’s classmate forwarded ad to Mark Ponozzo, President, Black Clawson Converting Machinery, $35m firm • Closed MBO of Black Clawson
  22. 22. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Introduction • One-to-One Media • Social Media • Capital and Deal Network • Next Steps http://www.flickr.com/photos/23905174@N00/2438005410/
  23. 23. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Investor Network Valuation Formula David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) Ch = Character Co = Your Firm’s Competence R = Relevance of the contact S = Strength of your relationship I = Information N = Number of people D = Diversity = D * ∑ (Chn*Con *Rn* Sn*In) N n=1
  24. 24. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Always Be Closing Alec Baldwin in Glengarry Glen Ross http://www.onlygoodmovies.com/blog/thoughts-on-film/glengarry-glen-ross-my-favorite-movie-scenes/
  25. 25. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com vs. Balance Strength vs. Number Average Strength = Minutes Available / Person Number = # People therefore… Average Strength * Number = Total Minutes Available Quality vs. Quantity
  26. 26. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Build personal relationships with journalists • Have a clear point of view and area of expertise • Develop and publicize quotable white papers and other thought leadership pieces The best reason for deals to come to you is reputation. However, of 109 journalists surveyed, zero rated private equity firms “excellent” in communication. Haynes, Bill. “Making Media Count”. PrivateEquityOnline, April 7, 2009. Recommendations: Journalists’ Evaluation of PE Funds’ Communication Skills
  27. 27. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Biography analysis software allows you to search by common affinity and more effective subsequent outreach. • Boardex • Klout* • LinkedIn • Pipl • Relationship Science • ZoomInfo Leading Providers of Biography Analysis Data * ff VC portfolio company
  28. 28. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Daniel Zumino, founder of BCG Paris and angel investor, had made a small investment in a startup • He sent email to Stanford GSB alumni list seeking capital for the startup • Raised $8m through referral from alumni, via this listserv David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) Case study: Entrepreneur raised $8m from an alumni email list
  29. 29. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Angel Group Platforms Angel Communities Consumer Loans Private Equity Public Gust AngelList LendingClub Assoc. for Corporate Growth Albourne Village Proseeder CircleUp Prosper Axial FT Alphaville Long Room FundersClub Intralinks Deal Nexus Sum Zero OurCrowd MergerMarket Value Investors Club SeedInvest Major Gated Communities for Investors Identify co-investors and potential investments with online gated communities.
  30. 30. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com A number of companies are working to create online communities where LPs and GPs can meet; this model is not yet proven. Next Generation LP/GP Platforms by Target Market Retail LPs Community Tools for Institutional LPs Artivest Palico Bison.co iCapital Network Trusted Insight CAIS Group
  31. 31. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Successful crowdfunding campaigns are a sign of an investable company or space. * ff VC portfolio company Interaxon* Campaign on Indiegogo*
  32. 32. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Phone • Email • Web conferencing • Instant messaging • Internet telephony (e.g., Skype) • SMS • Twitter Using multiple media channels promotes stronger trust-building Caroline Haythornthwaite, “Strong, Weak, and Latent Ties and the Impact of New Media,” The Information Society, 18 ( 2002) 385–401. http://flickr.com/photos/re-ality/41676755/sizes/o/ Major Media Channels for Origination (descending order of importance)
  33. 33. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com CRM Applications Used by Private Equity Funds EquityTouch. ACG Events Survey Analysis, 2009. Available at www.touchahead.com/news.html 36% of private equity funds are using Microsoft applications for CRM which are not designed for CRM (primarily Excel and Outlook).
  34. 34. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Effective capital-raisers are data hounds Tools for Assimilating Data into Your Contact Relationship Management (CRM) System Data source Selected technology for inserting data into CRM Cards FullContact Data Enrichment Avention, ClearBit, Cloze, Data.com, Discover.ly, Evercontact, Introhive, LeadIQ, Plaxo, Ringlead, Salestools.io, SalesOps, VibeApp, DiscoverOrg Other LinkedIn Full CRM Microsoft Dynamics, Salesforce, SalesforceIQ, Act, Base, many others
  35. 35. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Well managed pipelines allow for use of a wide range of analytics to track dealflow. • Activity Measures: # Phone calls made; # Phone connects with management/board members; # Meetings; # Deals brought to Monday morning meeting; # Memos with approved budget for due diligence; # Indications of Interest; # Letters of Intent sent; #Letters of Intent signed; # closed transactions • Deal flow by source • Pipeline analytics: Conversion ratios (from each stage of the pipeline to the next); Proprietary vs. non-proprietary deals; Response time • Industry benchmarking measures: Percentage of deals seen completed by any firm; % of all deals consummated across the industry that fund would have considered which the fund saw Selected Dealflow Analytics
  36. 36. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com A CRM system is useless without compliance. • Senior management role modeling. • Ensure CRM generates direct value to users, e.g., by providing annual updating of information by admin staff. • Base part of compensation on compliance. • Tie compensation to firm performance, not individual performance. • Make data entry easy, e.g., by enabling sync to mobile devices. • Allow easy data export (controversial but not unheard of.) How to Ensure Use of CRM
  37. 37. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Selected Searchable Databases of Private Equity and VC Funds You can identify potential co-investors through any of multiple online databases. All Investors Private Equity Venture Capital • Bison.co • Galantes • Grey House • LP Source • Pratt’s Guide • VentureXpert • Asia PE Research • Eurekahedge • Pitchbook • PrivateEquityFirms.com • ThompsonOne PE Module • Angel List • CB Insights • CrunchBase * • PWC MoneyTree • LinkedIn * • TheFunded * • VentureDeal • Asian VC Journal • Venture Source * Has the most data for free
  38. 38. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Some VCs are trying to build the equivalent of quantitative hedge funds. • Funds: Correlation Ventures, Google Ventures, SignalFire • Data Tools: Bright*Sun, Core 2 Group, CB Insights, DataFox, Disruption Corporation, Funderbeam, Mattermark, PrivCo, Tracxn Quantitative VC
  39. 39. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Identify thought leaders in your sector with Klout*. *ffVC portfolio company
  40. 40. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Senior executives prefer to interact online behind barriers, just as they do in face-to-face networks Sample Gated Communities for Executives • IERG Online • Executive Forum • Sermo • Some LinkedIn groups
  41. 41. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Yahoo Groups • Google Groups • LinkedIn Online Community Platforms • Ning • Xing Every special interest group has an online community
  42. 42. Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro Social MediaOne-to-One © 2016 David Teten. More at teten.com Target investors who are one step removed from you • By geography • By industry • By personal characteristics http://500px.com/photo/514237
  43. 43. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com • Introduction • One-to-One Media • Social Media • Capital and Deal Network • Next Steps http://www.flickr.com/photos/23905174@N00/2438005410/
  44. 44. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Social media is a better platform for starting and researching transactions. Parameters Face-to-Face Social Media Character Judge by a handshake SEC filings Competence Personal resources Enterprise resources Relevance Semi-random Focused, searchable Strength Limited channels Multi-media Information Poor visibility Detailed, current data Number Small Large Diversity Restricted by time, space Crosses time & space Moving Deals Forward Face-to-Face vs. Online
  45. 45. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Any questions ? Slides at teten.com/PE-social Sign up for updates at teten.com @dteten
  46. 46. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Disclaimer A representative of an asset management firm (“Firm”) is providing this presentation for informational purposes to the intended audience. Nothing in this presentation shall constitute an offer or solicitation with respect to the purchase or sale of any security in any jurisdiction nor should anything in this presentation form the basis of, or be relied upon for, making any investment decision. Nothing in this presentation constitutes professional and/or financial advice of any kind (including business, employment, investment advisory, accounting, tax, and/or legal advice), nor does any information in this presentation constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. This presentation and the information contained herein are provided “AS IS”. The Firm and the presenter make no representation or warranty (express or implied) with respect to the information contained herein (including, without limitation, information obtained from third parties) and expressly disclaims any liability based on or relating to the information contained in, or errors or omissions from, these materials; or based on or relating to the recipient’s use (or the use by any of its affiliates or representatives or any other person) of these materials; or based on any other written or oral communications transmitted to the recipient or any of its affiliates or representatives. The Firm and the presenter undertake no duty or obligation to update or revise the information contained in this presentation.
  47. 47. Network Next StepsIntro Social MediaOne-to-One © 2016 David Teten. More at teten.com Appendix http://www.flickr.com/photos/23905174@N00/2438005410/

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