A Hyper Competitive Market Means Deal Flow Needs to Go Digital

Throughout the year, mid-sized VC firms source and screen anywhere from 200 to 1,000 potential deals. With this kind of volume, PEs/VCs need every tool they can get to screen the markets and develop portfolio companies. 

It’s no longer enough to look at the usual factors (market position, historical performance, industry trends, cash flows, and capital expenditures). To improve and streamline all areas of the business and keep your firm operating at peak performance, PE/VCs must take steps to digitize their deal flows or risk being left behind by the competition. 

Why Digitize Your Deal Flow?

Digitization often requires additional capital, but the benefits of the investment pay off quickly. As more and more firms undergo a digital transformation, CRM software revenues are expected to reach +$80 billion by 2025, and, based on findings from The PwC 2016 Global Industry 4.0 Survey, it’s clear why.

Companies that have implemented a full digitization strategy are projected to increase revenue by an average of 2.9 percent within the next five years while reducing costs by an average of 3.6 percent per year. But that’s just the start. 

Firm digitization benefits have a cascading effect across every functional department, from R&D through to IT. By implementing a digital strategy, paired with visionary C-Suite leaders focused on driving the changes digitization brings, portfolio companies can be armed with the right approaches to increase revenue and growth and justify higher valuations. 

Support R&D and Innovation

When it comes to R&D and innovation, change and distribution are rapid, but a company with the right strategies to quickly adapt and address those changes will be most successful in lowering costs and increasing sales. 

Collecting and analyzing different data quickly is a common challenge most companies face, but with a PE-designed tool like Altvia, firms can arm portfolio companies with visual reports on a combination of industry, traditional, and nontraditional data to quickly identify problems, industry trends, and drive changes and decisions. 

Streamline Purchasing and Production

While the upfront costs of digitization can be high, the investment pays off quickly as operating expenses decrease and outputs and earnings increase. By integrating automation into purchasing and production, companies can continually monitor offers and suppliers to ensure costs stay low as\production outputs grow.

Leveraging data and analytics in sourcing and operations management also allows for continuous monitoring and prediction of processes, which can then be quickly optimized. As an example, through the monitoring of equipment and performance, companies can use predictive maintenance, which allows for equipment maintenance to be automatically scheduled, essentially solving problems before they even happen. 

Optimize Supply Chains and Logistics

Digital capabilities can be used in every link of the supply chain, leading to big gains in efficiency, maximizing integrations, and optimizing inventory levels. Through cloud-based platforms, companies can plan in real-time and benefit from end-to-end collaboration with suppliers and customers. 

Additionally, data-driven analytics and communication enabled by digitization supports improved forecasts and performance throughout the supply chain, allowing companies to track and trace supplies and identify problems in real-time. 

Empower Marketing, Sales, and Customer Service

To close digital marketing, sales, and service gaps and add value quickly, PEs need to be focusing on digitization. Companies with omnichannel marketing strategies focused on B2P – reaching people – are more effective in reaching a new generation of digital natives.

With a digital sales interface complete with customer reviews, custom product configurations, and algorithms that integrate and analyze data from supply and demand, companies gain the ability to not only automatically match things like competitor pricing but can also enhance the customer experience. 

For example, through gathering data about the customer experience – i.e., search trends, social media, transactions – brands can improve marketing, sales, and customer service by tailoring each and every experience to specific consumer profiles and behaviors. 

Better Enable Enabling Functions (HR, IT, finance)

Human resources, information technology, and finance departments that take advantage of digitization potential will not only support a company’s transformation but also run their own teams more efficiently.

HR can use technology to attract and retain better talent; IT can fully integrate collaboration and knowledge management tools with all business applications and ensure stronger cybersecurity; finance can access and analyze data to drive decisions across every area of the business. Through digital operations, teams can cut the time spent on critical reporting and regulatory functions, freeing up resources and sharpening the company’s insights. 

Five Steps to Digitize Your Deal Flow

The benefits of digitization across all business functions are clear, but it can be a challenge to get started. By breaking it down into a six-step framework, firms can quickly get started and make the most of their digitization efforts:

  1. Develop a Digital Strategy

    Hire the right people to lead the strategy, with an end goal to digitally connect your entire organization, including portfolio companies.

  2. Upgrade Your FIrm’s Digital Capabilities

    Determine the right tools to help level up your digital capabilities. With an all-in-one CRM designed specifically for PE/VCs, firms can leverage technology to streamline areas like operational efficiencies and investor communications.

  3. Embed Digital Capabilities in Deal Sourcing

    By utilizing data and analytics in deal sourcing, firms can find more qualified opportunities faster, get a full-picture view on how they stack up to the competition and make a stronger offer that will guarantee an acceptable return.

  4. Employ Digital Capabilities to Help Manage, Optimize, and/or Merge Portfolio Companies

    The ultimate goal for your digitization efforts should be an interlinked system that feeds into all of your portfolio companies. All-in-one platforms like Altvia make this otherwise time-intensive project a breeze and empowers firms to access the data and information needed to maximize portfolio performance.

  5. Develop a Talent Strategy

    To maintain and continually optimize your digitalization, you’ll need a team with strong digital and analytical skills in place. Train your current team, and hire new talent if needed to ensure you have the right digital expertise in-house to keep up with ongoing trends and innovations in digital. 

Digitize Your Deal Flow with Altvia

For private equity firms, digitization offers many ways to create value within portfolio companies by

improving their processes, as well as upgrading and expanding their product and service portfolios

As innovation in PE/VC continues to accelerate, PE/VCs must take steps to go digital to scale with the market – and Altvia can help. To learn more about Altiva’s solutions for digitizing your deal flow, start a conversation with our team.

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.

deal flow