The Least Helpful, Most Disrespectful Thing
Permanent Equity’s fund structure is, ahem, unique. We keep investors’ money for 27 years and are allowed a lot of flexibility. This means that there need to be mutual, high levels of trust between us and our partners for the model to work.
Yet if there is something that is in short supply in the financial industry, it’s trust.
You might think that this would make fundraising a challenge for us. In fact, the opposite was true when we last raised in 2019. Being unique turned out to be an incredible time saver. The reason this was so is because we got a lot of quick nos. And by quick I mean within five minutes of getting on the phone with someone.
“What’s the fund duration?”was usually one of the first questions.
“27 years,” I’d respond.
“Uh, we can’t do that,” they’d say.
“Ok, great to meet you. Let us know if we can ever be helpful.”
I can’t tell you the number of times I had that exact conversation. And I loved it. It meant I spent five minutes instead of untold hours on a lead that probably would never convert anyway, avoided traveling to an in person meeting, and didn’t end up with a partner who ultimately wasn’t fully on board.
Now contrast that experience with its opposite. That’s the long no. And that’s the least helpful, most disrespectful thing.
We had a prospective partner once who told us that they would be in for $10M, but that they wanted to do more legwork so that they might get comfortable increasing their allocation up to maybe $25M or $50M. Great, we thought, let’s put in the work.
They came to visit us several times in Missouri and talked to our entire team. We went to visit them and spent hours walking through our historical investments and plans for the future. We answered a lengthy questionnaire, shared financial models, and tried to make ourselves available to answer any and all questions.
This entire process took almost a year and with a month to go before we closed our fundraise, they still hadn’t committed. More concerning, they started becoming slow to return our calls. Perhaps out of naivete we’d hived off a portion of the fund for their capital, so if a commitment wasn’t forthcoming, we’d be left in a lurch. Finally, they let us know via email that they wouldn’t be committing. What’s worse, they didn’t really even provide any specific reasons why.
You can understand why this is not helpful and disrespectful. Leaving aside the time, money, and opportunity costs, their sandbagging their way to a no made our entire business model vulnerable. We kind of took that personally.
I mentioned this story to another GP recently and he said that his bet was that they were having liquidity problems and were either hoping to solve them in time to commit or were too embarrassed to admit it. Maybe that’s so; I’d like to give them the benefit of the doubt. Yet if they were ever to come back and ask for feedback from us, we would tell them that we would have preferred to hear that there was a chance they wouldn’t be committing as soon as they knew there was a chance they wouldn’t be committing. And if that was on the first day we met, even better! Because there’s nothing that’s less helpful or more disrespectful than the long no.
As an aside, I was on a panel discussion recently and someone asked what all of our LPs had in common to make them commit to such a weird fund structure. It was a good question, and I didn’t immediately have an answer. We have LPs of lots of different sizes, from different backgrounds and geographies, and with different investment objectives. But as I thought out loud, I think I hit on it. What binds them together is that they are all genuinely curious about why things work and don’t work and also, like us, try to always do what they said they were going to do when they said they were going to do it.
Which is to say, if you’re curious and have follow-thru, that is both helpful and respectful.
– By Tim Hanson