WTT: What it Takes to Raise Capital

Summary

Summary of "Capital Allocators – Inside the Institutional Investment Industry"

Episode: WTT: What it Takes to Raise Capital
Host: Ted Seides
Release Date: April 24, 2025

In this insightful episode of Capital Allocators, host Ted Seides, a seasoned allocator and asset management expert, delves into the intricate process of raising capital for small investment managers. Through a thorough analysis of common pitfalls and strategic advice, Ted equips emerging fund managers with the knowledge needed to navigate the challenging landscape of institutional investing.

1. Understanding the Challenges for Small Managers

Ted begins by addressing a fundamental truth: "no one wants to invest in a small manager. There, I said it. But everyone wants to invest in a great small manager." (00:05). This sets the stage for a candid discussion about the hurdles small fund managers face in attracting capital. He emphasizes that while the allure of managing a larger fund is significant, small managers must prove their excellence to entice investors.

2. Common Mistakes and Self-Awareness

One of the critical mistakes small managers make is lacking self-awareness about the investment landscape. Ted shares an anecdote to illustrate this point: "A manager with less than $5 million under management attended Global Alts in Miami, apparently didn't raise money from the event, and decided to blame the conference organizers for his shortcomings." (00:05). This example underscores the importance of personal accountability. Ted bluntly advises, "don't be an idiot. I'm trying to be gentler." (00:05), highlighting that blaming external factors instead of introspection can hinder a manager's growth.

3. The Importance of Proactive Effort

Ted stresses the necessity of proactive effort in the early stages of the year. He reveals that in the first quarter alone, they received 82 inbound requests for managers to appear on the podcast, but only a fraction followed through with the required steps: "only 20 filled out the form and only four finished the questions." (00:05). This statistic serves as a lesson in commitment and diligence. Ted points out that many requests originated from PR firms, indicating that while managers are willing to invest money, they often neglect the essential groundwork needed to secure opportunities.

4. The Role of Luck in Capital Raising

Acknowledging that hard work alone isn't enough, Ted discusses the element of luck in raising capital. He references Howard Marks, who advises young professionals that "the best way to build a successful investment business is to have started 40 years ago." (00:05). This statement underscores the unpredictable nature of success in the investment industry and the importance of timing and external factors beyond one's control.

5. Finding Advocates and Building Relationships

Ted highlights the critical role of advocates in the capital-raising process. "Everyone wants to be first to be the second investor," he explains, emphasizing the importance of leveraging the brand and reputation of established investors. Building relationships with institutional investors who can vouch for a manager's capabilities is essential for gaining credibility and attracting additional capital.

6. Strategies and Programs for Success

To assist small managers in overcoming these challenges, Ted introduces a series of programs designed to enhance their capabilities:

• Coaching Program: Helps managers perfect their investment narrative.
• Investor Relations and Business Development Course: Offers a deeper dive into effective strategies for managing investor relations and developing business.
• Small and Emerging Manager Summit: An exclusive event requiring an advocate from the institutional investment community, aligning with the rule of being the second investor.

These programs are tailored to equip managers with the best practices and tools necessary for successful capital raising.

7. Final Insights and Analogies

Concluding the episode, Ted likens the journey of growing a small fund to winning in the game of tennis: "You need to cut unforced errors and learn how to hit winners." (00:05). This analogy encapsulates the balance of minimizing mistakes while capitalizing on opportunities—a mindset crucial for navigating the headwinds faced by small managers in both public and private markets.

Ted wraps up by encouraging listeners to utilize the resources available on their website, capitalallocators.com, to access past episodes, join the mailing list, and sign up for premium content, reinforcing the community-oriented mission of Capital Allocators.

Notable Quotes

• Ted Seides (00:05): "No one wants to invest in a small manager. There, I said it. But everyone wants to invest in a great small manager."
• Ted Seides (00:05): "Don't be an idiot. I'm trying to be gentler."
• Ted Seides (00:05): "The best way to build a successful investment business is to have started 40 years ago."
• Ted Seides (00:05): "You need to cut unforced errors and learn how to hit winners."

Conclusion

This episode of Capital Allocators provides a candid and comprehensive exploration of the challenges small fund managers face in raising capital. Through practical advice, real-world examples, and strategic program offerings, Ted Seides offers invaluable guidance for managers striving to prove their worth and secure investment in a competitive industry. Whether you're a budding fund manager or an institutional investor seeking to understand the dynamics of capital allocation, this episode delivers actionable insights to help you navigate and succeed in the complex world of institutional investing.

Transcript

[A]

This what Ted's Thinking what It Takes to Raise Capital Discusses a few Tips for Small Managers to Prepare to grow no one wants to invest in a small manager. There, I said it. But everyone wants to invest in a great small manager. So how does a small manager try to prove that they're great? I'd like to share some tips, most of which are routinely violated by the community of small managers. First, it's not their fault. Having spent a decade and a half investing in small hedge funds, I can't tell you how many times a manager complains that the only reason they don't have capital is because allocators don't get it. That's completely backwards. It's the managers who don't understand the playing field. My favorite recent example is a blog written by a manager with less than $5 million under management. He attended Global Alts in Miami, apparently didn't raise money from the event, and decided to blame the conference organizers for his shortcomings. Any seasoned allocator will conclude that this manager didn't do his homework, isn't self aware, and will never grow a business when he blames others for his shortcomings. A friend of mine calls this lesson don't be an idiot. I'm trying to be gentler. Second, do the work in the first quarter of this year, we received 82 inbound requests for managers to appear on the podcast. That's one a day. We have a process to vet potential guests that includes filling out a simple form, answering a few questions, and hopping on a call with our team before we mostly turn them away. It's quite like screening managers for allocations. Incredibly, of those 82, only 20 filled out the form and only four finished the questions. About half of the requests came from PR firms, which tells you the managers are willing to spend money, but they're not willing to do the work. As it turned out, we offered each of those four a slot in our 12 annual sponsored insights. Third, be lucky. Putting your best foot forward is necessary, but not sufficient. You'll need a healthy dose of luck, too. Howard Marks advises young professionals that the best way to build a successful investment business is to have started 40 years ago. That's a tough one to take to the bank. Fourth, find advocates. The allocator's rule of thumb is everyone wants to be first to be the second investor. The hard part of that equation, of course, is you need investors who allow you to leverage their brand. Eliminating mistakes like these and understanding the landscape are a small subset of tips that can help a manager achieve success. What else can a small manager do to increase their chances of growing? We put together a sequence of programs where managers can learn best practices. For starters, a manager can engage in our new coaching program to help perfect their story. Second, those wanting a deeper dive can attend our course for investor relations and business development professionals this December. And once you're ready for the big time, you can apply for our Small and Emerging Manager Summit. Although you'll need an advocate and investor from the institutional investment community to be eligible, that solves the rule of thumb. No matter how you cut it, growing a small fund is hard. The industry is facing headwinds for small managers across public and private markets alike, not the lucky tailwinds from the past. Like winning in the game of tennis. You need to cut unforced errors and learn how to hit winners. We hope we can be a small part of your future success. Thanks for listening to the show. If you like what you heard, hop on our [e-mail] where you can access past shows, join our mailing list and sign up for premium content. Have a good one and see you next time.