By Laura Kreutzer
Sept. 13, 2022 7:00 am ET

Avance Investment Management, a lower midmarket firm launched in 2020 in the midst of the coronavirus pandemic, has closed its debut fund with around $1.1 billion.

The New York-based firm, co-founded by former executives from Palladium Equity Partners, wrapped up its inaugural fundraising drive with double the firm’s initial $500 million target for the pool. Along the way, they lifted the fund’s upper limit.

Avance has wrapped up its new vehicle in an increasingly challenging market for private-equity fundraising. Global private-equity fundraising fell 43% in the first half of the year, to $247 billion, according to data provider Preqin Ltd.

Avance targets services and consumer facing companies with annual revenue of $25 million to $250 million and has already backed four deals out of the fund so far, according to the firm. Avance’s recent investments include RIA Advisory LLC, a revenue-cycle management technology provider based in Coral Gables, Fla., and construction equipment-rental company Synergy Infrastructure Holdings in Tampa, Fla.

Managing Partners David Perez and Luis Zaldivar recently discussed the fundraising campaign with The Wall Street Journal, including the challenges of starting a new firm in the midst of a pandemic and raising a more than $1 billion fund almost entirely through Zoom calls. Responses have been edited for length and clarity.

WSJ Pro: What were the challenges you faced raising a debut fund in a pandemic and how did you address those challenges?

Mr. Perez: Raising a first time fund even outside of a pandemic is difficult. It’s difficult because investors don’t ask you the real question which is “Are you going to make it?” They ask about your strategy, about your team and how you’re going to outperform other options, but they’re not going to ask “do you have what it takes to get to the end of this difficult road?” In some ways you have to answer that [implied question] in an implied way and demonstrate some progress.

WSJ Pro: How did you do that?

Mr. Perez: We took advantage of that time to make some investments. In our case it [also] meant that we built a pretty strong infrastructure. We were working remotely. Luis and I didn’t see each other [in person] for over six months. We saw each other in early March of 2020 and the next time was late fall. He had moved to Miami and we started the Miami office. We started two offices right away. We also teamed up with a lot of partners and vendors. We had at some point close to 30 of them. We still have over 30 trusted advisers and vendors, mostly firms we had worked with before, so that gave investors some comfort that there was some continuity, whether it was compliance or legal or other [tasks]. Then we started thinking about building a team and now have 20 people.

WSJ Pro: You mentioned you raised this fund almost entirely over Zoom and only met in person with one of the roughly 40 institutional investors that backed it. How did that go?

Mr. Perez: We had to learn and adapt. One of the things we did was make sure our website, for example, communicated who we are and how we work with people. We reinforced that through LinkedIn [postings], podcasts and other things that we did. The challenge of Zoom is it’s really hard to get to know people well…to know the person as a person and build that trust. Fundraising is a huge trust-building exercise and that trust building [through virtual means] is very difficult. So, we overemphasized the people-side of fundraising. We shortened our [fundraising] presentations, which is counterintuitive. If we were allotted an hour [with a prospective investor], we would make sure we were done with any Avance topics in 20 minutes. [We then] said to investors “I want to hear from you in the next 20 minutes, what’s important to you and what are you invested in?” You try to create that conversation that normally happens in a room and try to translate that over Zoom. So we had to learn.

WSJ Pro: How do you see the current macroeconomic and market challenges shaping the deal landscape as you look to invest this new fund?

Mr. Zaldivar: While no two crises are exactly the same, the U.S. economy has proven resilient and innovative every time. That’s exactly what we experienced going through the pandemic. The public markets and megacap private-equity markets behave differently than the lower midmarket, which has many more companies and many more founder-led companies. These are companies that are going to need help navigating these uncertain times. So we look at the opportunity set as being significant and relevant depending on the end market. You end up potentially focusing more on end markets that you think may have potential pricing power or may be less cyclical.

Appeared in the September 14, 2022, print edition.


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