A fund manager letter of support is a testimonial written by a third party that shows support and confidence in your ability to manage an investment portfolio and deliver outstanding results. It's the equivalent of a referral letter where someone you have previously worked with was confident enough to endorse your ability to succeed in your future endeavor and be a great asset to your next business partners.
A letter of support is one of the great tools that can help you better fundraise and increase the confidence of your investors in your ability to execute your investment strategy and deliver significant returns.
Social proof is a crucial component of successful fundraising. When it comes to their hard-earned money, people want to know that a pool of other legitimate actors and investors share enthusiasm and trust in your project.
A letter of support for the fund manager can help you raise more efficiently and attract more interest to your project. It is one of the elements that can help your warm leads take the leap and convert into investors in your fund.
Also, indirectly, if someone is confident and cares enough to write you a support letter, they are more likely to promote your fund to their network, leading to new conversations and new leads.
One of the most powerful leverages in fundraising is the network effect. The first few limited partners are generally the hardest to find. But since wealthy people generally have a network of wealthy people, once convinced by your pitch, they are likely to talk about their investment to their friends and business partners.
Also, for new potential limited partners (LPs) unfamiliar with your team and background, a letter of support is an excellent first step for background assessment. It proves that you've gone the extra mile to prepare for your fundraise and have already gained clear support from people in your network.
The more legitimate and widely recognized the person who writes the letter of support, the better it will receive. The person who wrote the letter of support can have an excellent personal reputation or a senior job title within a well-respected organization.
It can be because the writer has a reputation for being great at investing (warren buffet endorsing your fund would undoubtedly send a great signal to the market). They may have been very successful in the vertical you are targeting. They will benefit operationally from their knowledge and relationship with potential clients and suppliers once you've made your first investment. If they're good at both, like Mark Cuban, you have hit the jackpot of a support letter.
The structure of a great letter of support must show clear support of you as a portfolio manager, as a person, and of your vision.
A letter of support does not have to be as formal as an information memorandum or other fund marketing material. The more genuine it sounds, the more impactful.
We have all read a preface of a book where the preface writer goes on and on about how they met the author of the book, what qualities struck them first and foremost, why the author and his book are simply brilliant, and how glad and honored they are to be part of it.
A great fund manager support letter would follow a similar structure. It can start with a quick self-introduction and a presentation of their relationship with the fund manager.
The perfect support letter shows positive emotion and excitement about your strategy. It writes about personal and professional shared experience, gives concrete examples of why they believe in you and your future success, and acknowledges and recognizes your work ethic, values, and soft skills.
Again, anyone who is legitimate on your market and will help build trust amongst your LPs is a great person to ask for a letter of support from. In particular, here are a few categories of people that will help you tip the scales in your favor.
If you already have a track record, you have worked with a fair share of founders and C-level leaders. A support letter from successful leaders with operational expertise demonstrates your capacity to build and maintain excellent relationships with your portfolio companies and the value you can add to the companies you invest in.
If you can get the support of your former hierarchy, who can endorse the quality of your work and generally have spent years working with you and getting to know you, it sends a strong message to your future partner about how reliable you are.
It is also a great way to make them more committed to your new project. If they liked working with you and you asked for a recommendation letter, they are likely to say yes. And by doing it, they are already building a sense of involvement in your endeavors and are more likely to want to know how you are doing and offer help.
Once someone has recommended you, seeing you thrive is in their best interest.
If you have early investors excited by the project, don't hesitate to ask them to explain why in writing.
Crowdfunding platforms like Wefunder ask investors to write a few lines about why they decided to back a start-up. Generally, your first LPs share your vision and passion and are keen to share the word.
Early backers of very successful start-ups are generally acclaimed amongst the investor community. There is a sense of pride in being first, in being one of the early backers of the project. For an investor, it feels like they have found a gem amongst the ocean of start-ups.
These connections can be family connections. They're generally more geared towards endorsing your values and showcasing how great and trustworthy you are.
They may not be as powerful as being endorsed by a renowned business mogul, but many LPs emphasize the character of the fund management team. Having someone testify that you are an honest, hardworking, and loyal bloke can only play in your favor.
If you plan to use leverage on your deals, a support letter from one of your financing partners is a great way to show that you have existing business connections that allow you to execute a deal seamlessly. It might state that they believe in your project and are ready to review all your debt financing projects.
What is even more impactful to get from your financing partner is a formal commitment to provide a line of credit that you can freely use on each deal. But getting to that point requires a lot more commitment, paperwork, and hierarchy sign-off from your bank contact, all of which make it harder for them to say yes.
Adding a support letter to your toolbox is a great way to convince a more extensive base of the LPs that you want to invest in your fund. Of course, the support letter will be in addition to standard marketing materials (fund offering memorandum, one pager) and technical legal documents (limited partners agreement or LPA, subscription agreement, and investor questionnaire),
Also, feel free to ask for feedback from those who decline the investment. While the testimony of how great you did in the past or how great of a person you are can help other investors better understand your background and trust you, getting feedback will help you identify the primary source of refusal.
Some of these will concern parameters you have no control over, like "you do not have a long enough history of making deals." Still, others can be invaluable, like "we haven't perfectly understood your value proposition" or "we're bearish on the specific niche you're targeting."
Based on that, you can act by tweaking your messaging and improving your story-telling or by taking into account feedback to redefine your investment strategy and make it more attractive and in line with the most up-to-date macroeconomic reality.
If you want more material about how to write a letter of support or what a letter of support should look like, you can check out the following resources:
Letter of support pdf template
Letter of recommendation template from The Balance Money
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