Finding Fundraising Product Market Fit

As painful as our fundraising journey over the course of the last four years has been, I feel blessed to have that behind me given I’ve now heard the stories of others just embarking on that process. No less than ten (yes, 10) of my friends with entrepreneurial ambitions have confided in me about their pending departures from their current firms. It is unclear to me what monster COVID inspired but I am honestly terrified for most of them (and have said as such). It’s NOT that they aren’t well pedigreed, trained and thoughtful investors but for those that cut their teeth in value oriented firms, I fear for their upcoming fundraises

John Maynard Keynes: “the markets can remain irrational longer than you can remain solvent.”

That is very much true for the market environment we are in today. I’ll focus the conversation on the lower end of the market where my friends will likely be focused to raise their initial pockets of capital, ultra high net worth (“UHNW”) and family offices (“FOs”).

Historically, the conversation I’ve traditionally had with UHNWs and FOs was focused on (a) sleep well at night cash flowing assets and on the other side of the spectrum (b) some venture capital. Private credit oriented assets or lower middle market private equity (“LMM PE”) could thus find a home somewhere in the continuum with >2.0+x MOIC returns. However, in today’s market environment, the conversations I’ve been part of suggest that the scale has tipped dramatically. Venture capital is no longer the risk-seeking asset of choice for UHNW and FOs. Instead, topics like SPACs, Crypto, NFTs and DeFi have entered the conversation. I’m sorry, Papa Lee has a PhD in Computer Science, I barely know how to turn on a computer. I’m basically a dinosaur — I don’t pretend to understand any part of the conversation

The UHNW and FOs I’ve engaged with recently are heavily skewing their traditional asset allocation for (a) to firms they’ve had long-standing relationships with and opting to be risk on for (b) with assets that might have significant call optionality / convexity

What does that mean practically? The role that emerging managers (specifically thinking private credit / LMM PE) have historically provided of alpha generation within a portfolio may no longer be as applicable. Why’s that? I’ll give the example from the perspective of a large hospital system allocator I met with recently. This CIO no longer allocates staff resources to actively managed hedge funds as the amount of alpha relative to the passive index is 300bps (to be generous). The resources are instead allocated to private assets where the alpha realized far outweighs 300bps. My sense is that many UHNW and FO allocators are undertaking similar exercises. They are cutting down resources historically allocated to assessing emerging managers and instead re-positioning their attention to assets where outsized binary outcomes seem to be produced / realized overnight (I recognize this is Beta BUT remember picking the right Beta is Alpha)

To that end, if a manager has yet to establish an investor base, he / she might well be undertaking a fool’s errand. Raising capital your first time around has and will always be difficult, but fighting for attention amidst today’s gold rush may be akin to selling ice to an Eskimo! I sincerely hope to be proven wrong

My advice? Have (a) deep pockets (basically solvency for a long winter), (b) a supportive / or non-existent (basically be single) significant other, (c) know your audience (find someone who wants your product) and (d) reduce your time to value proposition (return capital as quickly as possible)

My favorite analogy for fundraising is the NCAA tournament. Your reward for successfully fundraising initially is the opportunity to fundraise again but at a larger scale with a more sophisticated opponent (i.e., my beloved Illini beating Drexel only to have to play Loyola Chicago in the second round…)

Your reward for successfully fundraising among UHNW is the opportunity to do it with FOs then Endowments and Foundations then Pensions then Sovereign Wealth Funds… Get excited!

P.S. Sorry Papa Lee, you were right (as always). I should have taken your counsel and been an engineer



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Andy Lee

Andy Lee


Just a little country boy, lost in the city. Property of @tacoboutcorgi Get in touch via