Building an investor relations client list: first-time sponsors or ones already on their third fund

Question

Splitting a sponsor prospect list into first-time and established groups is a useful way to think about where IR support adds the most value. First-time sponsors typically have no template, no portal, no reporting schedule in place, which means an IR service gets to set the system up from scratch and is present from investor one. The tradeoff is a small investor base, often eight to fifteen LPs, thin budget, and a real chance the sponsor never raises a second fund at all. Established sponsors on a third or fourth fund usually have real budget and 150 or more investors, and they already understand what a missed quarterly update costs them in trust. But they also already have some system in place, one they may half tolerate, with someone internal who owns it and may not welcome outside help. Winning that account often means either replacing that person's function or working carefully around them. Investor retention tends to be the dominant driver of repeat capital for a sponsor, which argues for spending time with the established groups that already have a base worth retaining. But first-time sponsors who do make it tend to grow alongside whoever helped them build the system from day one. Both cases have a real argument, and the right split usually depends on how much runway an IR practice can afford to spend on sponsors who may not survive to a second raise.

angela_burke · Answer

Established, and it is not close. First-time sponsors negotiate on price because price is the only thing they understand about the service yet, and they churn the moment a deal stalls. A sponsor on fund three already has a number in their head for what a missed K-1 costs them. The internal person you are worried about is usually the sponsor's spouse or an ops hire drowning in it. That person is rarely defending territory. More often they want the quarter-end weeks back.

monica_tran3 · Answer

The best IR clients tend to come from the middle, which @devon_pierce did not list. Fund two, 40 to 70 investors, just burned by doing everything manually on the first one. They have budget and they have a fresh memory of the pain. First timers do not know what hurts yet, and fund four has already solved it somehow.

nataliehsu · Answer

@monica_tran3 that middle group is a smaller list though. If bramble has 30 names maybe four are there.

ryanmck27 · Answer

Thirty names in two markets isn't a list, it's a start. I'd call all of them just to hear what they say about quarter-end, then decide. You're guessing at their pain from the outside right now.

mitchell_ray4 · Answer

@ryanmck27 that's how I got my first trade clients. Called everybody, learned which complaint came up most, then built the pitch around the complaint.

tonyv88 · Answer

A definition first, since the thread is using it loosely. Investor relations for a syndicator means the investor-facing work after the money is in. Quarterly and annual updates, the portal where LPs see their documents, onboarding paperwork for new investors, distribution notices, and answering the questions that come in. It is separate from capital raising, which is about attracting the money in the first place. Some sponsors hire one person for both and that is where scope arguments start. On @devon_pierce's question, the thing that separates a first-time sponsor from an established one is whether the sponsor can name a cost for doing it badly. A sponsor on fund three usually can. They have had an LP decline a deal, or spent a week rebuilding a contact list. That named cost is what makes them a buyer. A first-time sponsor with a handful of investors often genuinely does not need a service yet, and telling them they do is a hard sell that stays hard. @ryanmck27's point about calling the whole list is the practical one. It is not possible to tell from outside which sponsors have a system they hate. One question does most of the work: ask what last quarter-end looked like. The answer sorts the list. One thing to keep straight throughout. If any part of the work involves soliciting investors or touching compensation tied to a raise, that can pull the work into securities licensing territory, and that is a conversation for a securities attorney before anything is signed.

Building an investor relations client list: first-time sponsors or ones already on their third fund

6 replies