When first getting to know the fund management system needs of our private equity clients, we discuss what method they are currently using. Often, the answer is Microsoft Excel.
Private equity firms tend to look for a new solution when they reach the limits of the functionality provided by Excel, which is inevitable. Excel is great for basic data management and analysis, but when it comes to the intricate work of managing relationships, funds, and associated deals, the systems’ shortcomings as a fund management system “stand-in” are glaring.
In our experience with many firms through the years, we’ve found that there are several reasons why Excel isn’t an effective tool for managing funds. If you’re currently using Excel or have used it in the past, you probably recognize some of these failings.
What’s important at that point, of course, is taking action to address them. Firms that make the choice to “get by” with Excel or some other product or system not specifically designed for the private equity industry quickly find themselves falling behind their competitors. Then, they frequently have to try to research, vet, obtain, and implement a fund management system even as they’re struggling to compete with other firms.
It’s a stressful scenario that your firm can avoid by recognizing the signs and making your move to a new fund management system.
EXCEL’S LIMITATIONS AS A FUND MANAGEMENT SYSTEM SUBSTITUTE
Excel is a powerful, flexible tool, but it wasn’t created to help firms manage funds. That fact isn’t just apparent in a few key functions. There are actually 10 areas where the software falls short of the requirements for even the smallest of firms. And if your firm is growing or looking to grow, it can be even more restricting.
Here is where we see the biggest drawbacks in using Excel instead of a purpose-built fund management system.
When you’re working with individual files that must be shared, it’s challenging to collaborate. Using Excel, only one person can have the spreadsheet open at one time, which creates significant inefficiencies and an irritating user experience.
- Data integrity.
All of us have had this experience: You attempt to open up an Excel file that’s been edited by several people and find that it’s corrupt. As a result, the firm loses the benefit of all the work that had been put into the spreadsheet. And even if you have a backup that can be recovered, you’ve still lost time and wasted effort.
Controlling the location of an Excel file is nearly impossible. You might have a central location for file sharing, but it’s not uncommon to be working on a file and, for example, get called into a meeting or a phone call, so you save the file to our computer without updating the group version. This becomes a “hot mess” that has to be resolved, creating massive inefficiencies for the file users and the firm in general. In some cases, firms end up with hundreds of versions of the same document. (Yes, literally. Hundreds. We’ve seen it!)
Many Excel files used in fund management activities become a complex web of connected cells and formulas. Then, if a problem with the file arises, it’s nearly impossible to figure out what’s broken or how to remedy the situation. Even a well-intentioned, relatively knowledgeable user can blow up a file with one small mistake, rendering it unusable. And there is often no way to track who made which changes. Additionally, you’re probably going to end up with one person who is the “master” of that spreadsheet and understands it best. If that individual leaves the firm, their knowledge leaves with them.
An Excel file can sometimes feel like an island in a sea of data. You likely have related information on your funds and the associated relationships, deals, and people involved, but it’s nearly impossible to marry all of that data together in a single spreadsheet. Consequently, your Excel file is essentially isolated. And as a result, you aren’t seeing the big picture and will have gaps in your understanding of funds.
Working across interconnected workbooks often seems like being the person on the bomb squad wondering what’s going to happen when you snip a wire. The more connections you create between workbooks, the more precarious the situation becomes.
- File access.
In many cases there are constraints in Excel file access. You may have to be logged into a specific system, VPN (virtual private network), or document sharing network to access the proper file. Also, when you do get access, it’s typically from a desktop due to the inherent limitations in using Excel files from mobile devices. This isn’t ideal in today’s 24/7/365 private equity world.
If you want to perform advanced reporting in an Excel file, you’ll typically have to understand Visual Basic, and probably few people in your firm do. Plus, Excel doesn’t provide structured data points that you can report on. In addition, it’s hard to print from Excel, so putting together reports to take to your next meeting can be a tedious, time-consuming endeavor.
- User experience.
Pivot tables are hard to create, sharing files is difficult, accessibility is limited, and so on. We’re familiar with these issues, but they are increasingly hard to tolerate as we all become more acclimated to simplified, streamlined, web-based software experiences. And that irritation applies both to firms and the entities and individuals with whom they interact.
- Human capital.
Is it a good use of anyone’s time to function as the designated “Excel jockey”? No, of course it isn’t. And it’s important to recognize what a drain on your resources it is to continue to require someone to fill that role. It’s very important to free up your team to do more critical and strategic work.
USING EXCEL TO SUPPORT YOUR FUND MANAGEMENT SYSTEM
Excel is a great tool that has multiple uses, and we rely on it for many specific functions here at Altvia.
However, if you’re using it in lieu of a fund management system rather than to support a fund management system, you’re probably encountering problems.
Or worse, that approach is causing problems that you haven’t yet identified. You know… the shark that’s below the water rather than the one whose fin is making waves so you can keep an eye on it!
Whether you run a family office, fund of funds, or real estate office, you owe it to yourself and your stakeholders to learn how Altvia helps private equity firms move past Excel and operate more efficiently, securely, and effectively with a true fund management system.
To see how firms are moving away from Excel and onto a platform built for Private Equity, read the Digital Collision coming for PE & VC.