Passthrough, a leader in fund workflow automation for investors, fund managers, and other fintechs today released its first State of Fundraising Report 2023.The report surveyed 101 Fund managers and GPs based in the US which revealed investor sentiment into capital raising, how current market challenges are impacting investments, what factors determine where capital is going, and more.
The survey found two major challenges impacting fundraising: market conditions and the macroeconomic climate. In fact, almost 4 in 5 (79%) found the current market conditions for fundraising challenging, with almost 2 in 5 (37%) going as far to say it’s extremely challenging. Moreover, over half (55%) say the current market conditions have increased the difficulty in attracting new investors and just over a half (51%) say it’s heightened operational due diligence requirements.
Surprisingly, nearly half (46%) of fund managers or GPs surveyed say they have increased their fundraising target size as a result of the current macroeconomic climate. This is in contrast to the 25% who said they have decreased their fundraising target size for the same reason.
In order to address these challenges, fund managers and GPs are implementing a number of tactics, including:
- 51% are offering more favorable terms to investors
- 49% are exploring new geographical markets to diversify the investor base
- 41% are increasing brand investment for their firm
- 51% are focusing on existing investor relationships for additional commitments
- 41% are offering new products to investors, i.e. co-investment opportunities
Many have also decided to embrace the AI revolution in response to these challenges. The survey found that:
- 53% of respondents are using AI for data driven analytics of their fundraising efforts
- 51% are using AI for operational due diligence
- 49% are using AI for personalized outreach
- 46% are using AI to generate pitchbooks
“With unprecedented global changes and a cloudy economic outlook – GPs need to provide the best possible investor experience to remain competitive in fundraising,” says Tim Flannery, CEO & Co-Founder at Passthrough. “It’s why we built Passthrough – to solve the friction for investor onboarding and closing funds. Our first of many, the State of Fundraising Report 2023 provides insight into the importance of the adoption of tools like AI, pressure on secondary sales, and other critical factors so investors can adjust their approach accordingly and leverage workflow automation tools to do the rest.”
With these ongoing challenges, many fund managers and GPs surveyed are expecting their investors behaviors and priorities to change. The survey found that fund managers are seeking more international and retail exposure as opposed to institutional investor participation. Specifically:
- 51% of fund managers and GPs surveyed expect more international investor participation
- 49% expect more retail investor participation
- 48% expect more institutional investor participation
- 45% expect more family office participation
Notably, 79% of respondents state that they are experiencing increased pressure around LP secondary sales from investors. 53% that have experienced this are providing more liquidity opportunities, compared to the 26% who have experienced this but are not providing more liquidity opportunities.
Furthermore, the survey also revealed that one of the biggest factors determining where this fundraising money goes is ESG. In fact, over 7 in 10 (73%) fund managers and GPs say investors see environmental, social, and governance as a higher priority in their fundraising efforts now than 12 months ago, with over a quarter (27%) saying it’s a much higher priority.
“Passthrough’s State of Fundraising Report 2023 is an accurate depiction of the fundraising environment today, which is more dynamic and volatile than ever, says David Reuter, Partner at LLR Partners. “LPs are working with a variety of portfolio rebalancing needs and hoping to see more distributions from GPs. GPs are also rebalancing – trying to find the sweet spot of maintaining investment strategy and investment return profile while growing their firms to create opportunities for team members to advance their careers.”
To read the full report, please visit passthrough.com/resources/sof-report-2023.
About Passthrough
Passthrough turns workflows like subscription document execution into solved problems – seamlessly manages subscription document distribution, execution, and compliance in minutes. Founded by former leaders from the Carta Investors Services team Alex Laplante, Ben Doran, and Tim Flannery, Passthrough provides an integrated platform solution that makes the subscription document process turnkey for investors with replicable and verifiable identity information built in for future use. In addition to subscription documents, Passthrough also offers a comprehensive AML & KYC compliance product which collects information from investors so fund managers can remain compliant. To learn more please visit https://www.passthrough.com/.
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