Seeding Arrangement Insights: How a Manager Can Optimize Its Infrastructure to Attract a Seeder (Part One of Two)

As though it were not already difficult to succeed as an emerging manager, the coronavirus pandemic has managed to dry up deal flow and slow fundraising. A potential life raft that can help emerging managers survive the storm is a fruitful seeding arrangement that provides both necessary capital and valuable expertise. Emerging managers need to take various steps, however, to make themselves attractive to seeders, including properly structuring and documenting the founders’ arrangement. K&L Gates recently hosted a webinar on those and other issues. Moderated by partner Edward Dartley, the panel featured partners Michael W. McGrath and Adam J. Tejeda; Karl Schade, managing partner at Presidio Investors LLC (Presidio); and Amir Aviv, managing partner at Gatewood Capital Partners LLC – a PE fund dedicated to anchoring and seeding emerging managers, which is a seed investor in Presidio. This first article in a two-part series explores the market outlook for PE funds through 2020; founder qualities and team dynamics attractive to seed investors; and equity compensation arrangements for founders. The second article will examine the nature and characteristics of successful seed investor-manager relationships; value-adds that seed investors may provide; and the importance of targeted marketing and thoughtful fund structures. For additional commentary from K&L Gates, see “What Role Should the GC or CCO Play in the Audit of a Fund’s Financial Statements?” (Feb. 4, 2020); and “How PE Sponsors Can Tailor Traditional PE Funds for Shari’a-Compliant Investors” (Oct. 1, 2019).

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