How firms embrace technology to differentiate in private equity

With many new private equity firms popping up virtually overnight, differentiation in private equity has become a critical success factor to stand out for firm the firm’s growth.
Differentiation can be defined as the result of efforts to make a product or brand stand out as a provider of unique value to customers in comparison with its competitors. In private equity, this often translates into a firm’s “secret sauce” in how they source deals and find investment opportunities.

But differentiation is highly dynamic. It changes as the market, business environment, technology, and preferences change. Differentiation, in the case of today’s firms within private equity, involves the ability to discover new insights from your data and act faster, and where to invest next in order to be perceived as a leader in the industry by your peers, investors, and competitors. Another area where we are seeing differentiation between firms is how up-to-date or antiquated a firm is delivering this date to their potential investors or current LPs. 

Many private equity firms are embracing the use of technology to differentiate from others in their space. If you’re looking for ways to differentiate your firm, there are four steps you can take to differentiate your private equity firm with using technology for processes, communications, and decision making. They are:

Step 1: Clearly Define Processes

Step 2: Use Technology To Automate

Step 3: Optimize With Data-Driven Decisions

Step 4: Leverage The Power Of Relationships

Step 1: Clearly Define Processes

The first step to creating differentiation in your private equity firm is to clearly define your processes. Critical processes for private equity include:

  • Processes for raising funds
  • Processes for identifying new deals or investment opportunities
  • Processes for reporting performance to investors
  • Processes for communicating to limited partners

Clearly defining processes in your firm is important for a number of reasons. It provides consistency in timing, quality, and decision making. It also creates alignment amongst your internal staff and supplies transparency to other stakeholders. Defining processes also highlights what can be automated and/or optimized to improve both the efficiency and the efficacy of each process. All of these outcomes increase firm productivity, transparency, and agility as you continue to build the foundation of your firm’s differentiation.

It’s not enough to simply define processes. Your firm must build alignment and excitement around them across the organization. This alignment must start from the leadership level and permeate through the rest of the organizations. Because if people aren’t being managed to the processes that are defined, they just end up being words in a document.

Step 2: Use Technology To Automate

Once your core processes are well defined and there is buy-in throughout the organization, your firm can begin to look at what tasks in each process can be automated. 

Technology built specifically for private equity has improved significantly in recent years. Choosing the right one(s) requires consideration of a number of factors. No matter which vendor you choose, you’ll first need to be able to answer the following questions:

  1. What problems are we solving? What is our investment strategy?
  2. What types of data are needed to solve these problems and deliver against this strategy?
  3. What does implementation success look like?

In our experience, successful new firm technology implementation requires:

  1. Executive sponsorship
  2. Inclusion of stakeholders at all levels
  3. 110% commitment to populating clean data & maintaining system
  4. A plan to streamline existing workflows with automation

Step 3: Optimize With Data-Driven Decisions

Once you have firm processes in place, and are automating at least some areas of those processes using technology, you’re ready to start optimizing. Using data analytics technology for PE means that your firm can start making more data-driven decisions. Using the right private equity CRM solution allows you to consolidate, integrate, and harness your data to extract insights. You also have the option to combine your internal data with market data to provide more context to the trends and information you’re seeing.

For example, you can start to identify which contacts are most likely to be ready to invest, which fundraising activities are most effective, and more. Creating visualizations and dashboards also help your team make better sense of the data collected, rather than needing to pour over spreadsheets and notes to try to find trends and insights.

Optimization doesn’t happen overnight. And it’s really never “complete”. As the technology gathers more data, it’s able to continually return better insights and trends. Also, trends in investing behavior, communications, and other external factors change over time. Implementing a private equity database solution allows you to adjust with these external shifts as well as optimize internal processes.

When your team enters the optimization phase of data-driven differentiation, it’s critical that you understand and define the problem you are trying to solve. You’ll want to be able to answer three key questions:

  1. Now that we’re capturing the data, what are we going to do with it?
  2. Is the data complete and normalized to get accurate analyses?
  3. Is the sample size large enough?

Step 4: Leverage The Power Of Relationships

Of course, success in private equity relies heavily on the power of relationships. To differentiate your firm in the private equity crowd, you can always stand to improve how you build and maintain relationships with your investors. 

Clear, consistent communication is the foundation of your relationships with LPs and investors. Using PE communication technology to personalize communications, and automate wherever possible, helps your brand stand out from the crowd. It also improves proactive communication and relationship development.

Getting proactive means providing transparent data and reporting in a visually appealing and easy to understand way. It also means providing these reports consistently, so that investors always know what to expect and when to expect it.

PE firms that are truly setting themselves apart today are using LP portals to provide enhanced access to firm information 24/7/365. They’re also using their information systems to not just send Capital Call notices, PPMs, K1s securely, but also provide LPs with an easy way to request, capture and track digital signatures.

Differentiation in the private equity crowd can be difficult to accomplish in today’s crowded market space. But many firms, of all sizes and types, are finding the use of CRM solutions built for private equity to be extraordinarily helpful in this area. Adopting technology doesn’t just improve the productivity of your internal team’s time. It also improves decision-making through data-driven insights and LP communications and relationship building.

See how firms like yours differentiate themselves with Altvia.