Following a successful career leading an investment team for a multi-billion-dollar private equity group and serving as CEO for a private equity-backed portfolio company, an ambitious entrepreneur sought to assemble a small team to establish their own private equity firm. The group set out to raise their first fund with a target of $150 million, with the goal of sourcing largely from institutional investors.
With no direct experience in fund formation and fundraising as an independent firm, the group faced a steep learning curve – the legal, regulatory, financial and related hurdles are significant even for seasoned professionals; for newcomers, the skill set is specialized enough that outside help is often essential.
There were a number of additional complications to overcome: The fund’s founders needed to satisfy the distinct operational and compliance requirements of institutional investors, they lacked specific expertise with back-office functions, one of their largest investors demanded an offshore entity structure to avoid UBTI, and they needed to develop a solution for managing accounts receivable from their portfolio companies.
E78 Partners was engaged prior to fundraising and provided insight and expertise throughout the fund formation and fundraising process. E78’s balance of experience, technology and high-touch client service also led to the firm’s selection as an outsourced fund administrator. Specific actions that enabled E78 Partners to successfully shepherd to the firm though foundation and launch included:
- Reviewing the fund’s legal documents, including LPA, PPM, subscription documents and more
- Working with the fund’s legal counsel and placement agent to solidify compliance and ensure proper SEC registration
- Coordinating due diligence and selection of key third-parties, including auditor, tax preparer and banking partner
- Completing operational due diligence questionnaires and reviews required by institutional investors
- Assisting in the establishment of a credit line
- Leveraging expertise in offshore blocker and parallel fund structures to provide guidance on registration requirements with the Cayman Islands Monetary Authority
- Identified Cayman-based compliance partners to fulfill ongoing regulatory requirements
- Established process for invoicing portfolio companies for monitoring fees, transaction fees and reimbursable expenses
By guiding a private equity firm through the process of fund formation, their goal of raising funds, providing a solution for managing portfolio companies as well as overcoming additional complications were realized, resulting in achieving 100% of their fundraising goal.