A Call to Action for The Next Generation of Private Equity

Private equity is a competitive industry. The bar for investment returns is higher than ever, and the need to innovate has never been greater.

One way firms are getting ahead of the curve is by investing in technology – from fund-raising software to CRM platforms that allow you to communicate with LPs on an individual basis.

As part of our ongoing mission to educate those looking for career opportunities in private equity, we’ve compiled this list of resources that cover all aspects of how technology can be used to help the next generation of private equity professionals succeed.

1. How are you investing in technology to grow your business?

2. Which tech trends do you see fundamentally changing the way private equity operates?

3. How can a good CRM system increase LPs’ satisfaction with their relationship with your firm?

At Altvia, we see these as some of the core questions to ask yourself when thinking about how to best position your firm and yourself for future success.

Investing in technology to grow your business.

Here are some things to consider when investing in software and technology for your private equity firm: – Can you stay competitive? Private equity firms are increasingly looking at the competition and how they can keep up with the industry’s demand for best-in-class performance from investors, companies, and portfolio managers.

A key area of focus is digitizing client experiences while also giving them a seamless experience across all platforms. That’s the key to creating a phenomenal LP experience.

Tech trends fundamentally change the way private equity operates.

As we have discussed, the private equity world is changing and adapting to better meet investor demands. That includes an increased focus on technology in general and software solutions specifically. – What are your future needs?

A key consideration when deciding what to invest in is assessing your firm’s current state and how it will evolve over time with respect to industry trends, changes in strategy, or organizational structure.

Building a best-in-class team of people that is constantly able to do more with less, through automation and data-driven insights is key to maintaining your current edge.

How a good CRM increases LP satisfaction.

Our SVP of Industry Solutions and Strategy, Jeff Williams explains,

“Better understanding your network, your relationship with that network, being more efficient at servicing and communicating with that network, and having the data to service and support that network are significant differentiators that many fund managers are still not taking advantage of. I expect that we’re in the early innings of this phase, and if some of the B2C markets that were early adopters of these technologies are any indication, the returns will be impressive and create outstanding differentiation for those who adopt them.”

Investment firms need to be able to adapt and change in order to stay competitive. One way of doing this is by using software for managing the relationship with investors, automating administrative tasks, or getting data-driven insights on how an investment strategy performs.

Winning Deals

A traditional crm was built for general ‘customer’ scenarios

Software platforms have made the world a better place by making work a better place. Indeed the world is better off when people enjoy their jobs even marginally more, and workplace applications on big CRM platforms like Salesforce.com have done that and much more.

But the potential that platforms like these offer presents diminishing returns: once the platform provider has engineered too many industry specific components into its platform, its usefulness for other industries begins to be threatened, and with that so do the usefulness of the component tools built into the platform.

So it is with the CRM category that Salesforce.com has defined: it is generic enough to work for many industries, and yet still offers the potential for others to round off the edges and nail more vertically-oriented and extremely tailored software solutions.

Private capital markets are actually a great demonstration of this dynamic. Where generic CRM platforms simplify — appropriately so — to assume there’s a business, a customer, a sale, and service of that customer, there are a few industry-specific pieces that are missing.

Take for example, that investors become customers by investing through legal entities the GP raises. It’s a subtle but important nuance that just doesn’t make sense at a platform-as-a-service level (because it’s overly complicated for a simple one-time sale that many industries require), but which can easily be added without 10 years or software engineering. Once provided, the rest of the platform’s components become tremendously powerful again and you’re set to take over the world.

As a traditional CRM in our pillars methodology, these nuances must be present to properly account for investors in these legal entities, potential target companies and which are owned by these entities, the context of all interactions with these parties (as well as the appropriate overlap, ie co-investments), and how you’re arriving at finding these opportunities on both sides of the equation, such that you’re able to piece together what’s effective and what’s not. Not just because we say so, but because these are the very relationships and data that are key to the motivation behind a CRM in any industry.

It’s critical, too, that the valuable publicly-available information that helps to enrich CRM systems and save users painful steps of entering it themselves is fully-integrated at the platform level.

Again, look no further than the 3,000+ pre-built integrations that Salesforce.com — the creator of the CRM platform concept — has at a platform level to do so, and which only exists by way of holding just short of overly-specifying certain industry workflows that would present challenges to properly integrate.

Stakeholder reporting and communication (investor relations) draws on a range of datasets

The traditional “customer service” model of CRM systems once again makes overly-simplified assumptions about the customer relationship when applied to private capital markets.

In fifteen years I personally have yet to hear the terms “warranty” or “service call” in this market because it’s just not the same. But make no mistake, as uncomfortable as it may be to say aloud, customer service is more important now than ever and it’s constantly happening; the industry is, after all, considered to be a financial “service”.

As it turns out, that service is primarily information-based — it’s driven by data and takes the form of reports and analysis that drive decisions, and then end up again in investor-facing reports and analysis.

The foundational elements of a private capital markets CRM must be built such that they accommodate this data (like we discussed above), but so too that it can accommodate additional supporting data that investors (customers!) need in the context of service.

Oftentimes this supporting data — financial metrics and time-based values, for example — is believed not to meet the traditional definition of CRM and the natural thought is “well, better do this in Excel!”.

While I happen to believe Excel is still the greatest software application ever built, its introduction to this value chain we’ve discussed herein actually creates the problem many firms suffer from: key data needed to provide customer service (again: effectively the entirety of a firm’s reports and analysis) is now in disparate systems and detached.

Both of those dynamics are important and distinct: not only is this supplemental data disparate, but when brought together there is no logical association that can be made between the two data sets.

Allow me, then, to make the point very simply: not only can this financial and time-based value data (you may be thinking about is as “portfolio monitoring” or “accounting”) be a part of a CRM, it is arguably the most important part of a CRM because it’s at the core of what providing service to the customer entails — information that comes out of data!

Firms need a digital method to engage stakeholders (ie investor portals)

Investor portals are not new; in fact, for many of us — including myself — they conjure up horrifying nightmares in which we’re aimlessly guessing at folders to find the newest document we need.

So in lies the opportunity: not only have the portals we’ve come to hate not simplified the process of acquiring information, they’ve failed to create an entirely new experience that is “customer service” driven.

To be fair, this is not a B2C market where you’d be long out of business for not having focused on customer service and thus the customer’s technology-driven experience. But don’t expect to be around too much longer if you aren’t thinking about this shift.

Today’s institutional investors increasingly expect this same consumer-like experience, and a massive opportunity is being missed by not providing it. It’s not about providing them the experience they desire; it’s more about the ability to measure engagement that is had in return.

Put simply: what’s keeping the market from providing this experience is the availability of the information that’s required to create the service that provides the experience.

If you’ve hung in this long, you know that by focusing on your CRM, you have the data that’s required to manage the customer relationship and the technology-driven experience through which that information is shared to create a differentiated and opportunistic customer experience.

private equity