Applications of AI in Private Equity

[00:04:45] Katie Mesha: Yeah a little bit ahead of the curve.   

[00:04:47] Jessica Ginsburg: And I think for all of us and hopefully coming to a silver lining of COVID, we do so much more over video than we used to just do with plain old phone calls. And so we hope we get to see her more, but yes, it’s been great.

[00:05:01] And, technology has helped along the way 

[00:05:04] Kjael Skaalerud: And with the tech stack that your team has put in place.  You’re really able to adjust quickly and stay nimble in the business environment, especially with things that were perhaps a little unforeseeable like COVID,  but this was definitely not the case across private equity at large. So I’d like to reference a thought leader that we really follow closely at Altvia and, and see what your take is, but Hugh MacArthur of Bain Capital said that when I think about the most manual industries, I start with landscaping. 

[00:05:29] And very quickly get to private equity investing after that. What’s your take on that, that statement on that sentiment.

[00:05:36]Jessica Ginsburg: I think at the end of the day, so much of what we do is driven by relationships.

[00:05:41] And so I think there’s a real hesitancy to automate a lot of those processes because I think service automation takes out that human touch. It takes out that human component. And I need to have really strong relationships with the intermediaries that are eventually going to bring us deals.

[00:05:58] How can I build those relationships? If I’m just a computer, sending out messages. So I think that’s why, but I think that there are ways to use technology to make that human touch more efficient. And that’s really been our focus here at LFM is, how can we take out some of the manual processes, but still build those strong relationships.

[00:06:21] Jeff Williams: It’s funny. I agree with Jess.  I think that relationships have been considered so important. I’ve always looked at the opportunity if you will technology presents in the market.  Kind of glass half full. I’ve always looked at it as where could technology improve the relationship, right?

[00:06:41] Where could we add value? And then there’s the obvious, where can we potentially fake it? Because the reality is, that’s the sort of promise of technology these days. And, I think it’s pretty obvious when it doesn’t work. So the challenge just becomes that much greater and we work that much harder to look at ways to use it with class, I suppose is one way to say it and then to go beyond that.

[00:07:05] And we add to the relationship, or can we strengthen the relationship, and this market at the end of the day, it’s just so competitive. that, to the extent that becomes possible and successful to do those two things, then, all bets are off. I think people are going to adapt and that’s going to lead to the competitive dynamic that it has others adopting it too.

[00:07:27] What we’ve seen at Altvia is LFM is a perfect example of that relatively new firm came in, very sort of engineering and kind of process-oriented. And immediately they found some amazing opportunities to not only compromise relationships with, but also to improve them, and to find ways to, use technology as a leverage.

[00:07:47] Katie Mesha: Building off of what Jeff said, relationships are so important and we’ve just been able to view technology as not a way to replace any of it, but a way to clear out the barriers and allow us to focus on those interactions that we have with the bankers, with the business owners. 

[00:08:01] Jessica Ginsburg: Yeah. As Jeff was talking to, I was thinking if the technology helps us identify who should those tier-one relationships be and who should those tier-two relationships be?

[00:08:10] It allows me to be more effective with my time. And I think on the direct sourcing side too, it helps us identify the really strong targets for us so that we can then, go after them again with that human touch. But we’re not, spending so much time going after the businesses that, we know aren’t the right ones.

[00:08:27] Kjael Skaalerud: And can you tell us a bit about the evolution of your firm’s relationship with technology? Over time, of course.

[00:08:35] Katie Mesha: There are a lot of Excel spreadsheets that were used in Google drive. We started with Salesforce just as if we were making in selling a tangible product. We tried a few other CRMs, different marketing tools. I think one of the nice things about having kind of the engineering process improvement core base is that we’re not afraid to pivot and move on if we think there’s something better.

[00:08:59] We finally landed on Altvia and it was nice to finally find a tool that allowed us to keep such a vast amount of information, but also keep it in a really manageable, easy-to-find way that we could utilize where we are today. We have a three-pronged approach. We use SourceScrub for our information resource management, and that feeds into Altvia where we manage our deal flow, accounts, and prospects.

[00:09:27] And then we use Outreach as our email marketing tool. 

[00:09:31] Kjael Skaalerud: Wow. Quite the journey. And how do you think about sourcing deal flow? In the most general sense. 

[00:09:38] Jessica Ginsburg: So stepping back a bit. On what we think of as our indirect sourcing, which is, deals, we see three intermediaries.

[00:09:44] I have a tiering system that I use as we think about our direct sourcing, which is our direct outreach to owners. We do bucket companies in high, medium, low, but it’s two separate processes.

[00:09:58] Jeff Williams: I think that one of the things that were really interesting is as we’ve talked conceptually about the topic of today’s webinar: applications of AI.

[00:10:08] We were really thinking a lot about how is this market changing? How will it change? And I’ve mentioned this to you previously. I’ve been of the belief that we are entering this period where the technology available to this market is able to, artificially toad you, right?

[00:10:28] Rather than you saying, okay, there are a million companies we could reach out to and I’ll just spend all day or all year in a spreadsheet trying to figure out which one I’m going to call. Then we’re really in this period now where the application ecosystem and the data that’s available is now able to tell us, Hey, here are some opportunities that may seem, more interesting and then, automation goes further into the realm of making it very easy for us to, relatively large-scale efforts.

[00:11:02] Talk to us a little bit about that. Talk to us about your experience. So you guys are a new firm relatively, and you’re doing some amazing things that are relatively large-scale.

[00:11:12] Jessica Ginsburg: Yeah. So I would say, early days, LFM, our direct sourcing process was massive data dumps from databases like Hoovers, where you had to go through this highly manual process of validating each company, do we think this company is the right size?

[00:11:27] Do we think they’re in our case manufacturing? Do we like that industry? And then each company let’s go through it. Let’s, green light, yellow, light, red light, whatever it is, and then get it into our system. And then repeat thousands upon thousands of times.

[00:11:42] Now what we can do is use a tool, like SourceScrub, where we can identify companies that have already been vetted the size of the top line.  We think we know what the size is. We know their manufacturing business. We know they’re serving an end market that we’re interested in, and not only do we have that information, but we have that information in Altvia.

[00:12:02] So the ability for the systems to communicate, has been immeasurable from an efficiency perspective. Whereas we used to go from, database to a spreadsheet, to CRM, to a spreadsheet, to email. We’re totally seamless from CRM to out the door and, it’s super-efficient.

[00:12:25] Jeff Williams: Yeah. So I’m interested in the CRM, because as you’re talking just a moment ago about relationships, that’s so key. I have this sort of dramatic kind of way of thinking… Oh, wouldn’t it be great if we’re all trying to find the same companies as targets and we’re all,  mostly working the sources in it’s like a razor-thin competitive edge that we hope leads us to win it. I’ve thought, wow, wouldn’t it be amazing if it was just a pure sort of race

[00:12:57] Hey, this is a company that, you all need to reach out to.  That would be cool and all, but the target really doesn’t care. Right?  They get a million calls and at that point about, the combination of having known about the target.

[00:13:16] As well as having developed a relationship and having your own proprietary kind of relationship. And that’s really where we’re playing the role of check, Hey, have you been working with this company before it was on the radar? And now this sort of triggering event, maybe some sort of filing or a new hire or press release of some sort that made it likely that there was some interest on their side. The combination now of having to develop that relationship and that information led you to them.

[00:13:43]Talk us through how you guys look at the relationship and how your process works there because that’s this huge part that together with some of the AI and automation is really what can lead you to winning a deal.

[00:13:53]Jessica Ginsburg: Yeah. So I would say, we developed really thoughtful communication to the business owners that we reach out to.

[00:14:00] Yes, some of our outreach is more broad-based and it’s going to be more general in nature, but we really like to supplement that with highly specific, highly targeted email outreach. So, maybe the owner, a business, and an end market, and we’re reaching out to business owners in that end market to say, Hey, we own this company.

[00:14:17] We know a whole lot about this space. We can help you grow. Let’s talk about that. Things like that or to say, Hey, it looks like, you were in the Navy. Our founder was also in the Navy. Let’s talk about that. So we really try to find touchpoints. And so that’s where we’re really combining that human touch with the technology.

[00:14:39] Katie, what do you think? Anything to add? 

[00:14:42] Katie Mesha: I think you really nailed it. It’s just having this seamless technology, taking out the human variable of all the imports and exports, and making sure you checked off the thing on the file. And it just really allows us to focus on the business owners and be really targeted.

[00:14:59] And like you said, thoughtful about our communications. 

[00:15:03] Jeff Williams: I think that’s a lot of people, the idea of AI and automation, we see this quite a bit where it’s like, there is just this sort of ominous, threat. A little bit, right?  They make movies about this where we all lose our jobs, to computers.

[00:15:15] It sounds to me like what technology is enabling here is not spending time and in some of the more kind of time-intensive, more tedious stuff that can be automated. And instead redirecting that time to where the relationship building happens.

[00:15:33] Jessica Ginsburg: Yes. That’s exactly right. It allows us to do more targeted outreach. It allows us to craft our messaging even better. It allows us to do follow up in different ways. So maybe we send out a really targeted batch and we didn’t get the results we wanted. Okay. Now, what can we do?

[00:15:50] And we can call these people on the phone or we can change the messaging and reformat it back. And it allows us, to pivot faster and do our jobs better. 

[00:16:01] Katie Mesha: I can say I was spending easily 50% of my time just managing data.  Probably 20 hours a week between formatting double checking, triple checking. And it took a lot of time. And as much as I love tedious spreadsheets, my passion is with talking with the people, talking with business owners, and getting the processes automated has just allowed for that. And I enjoy my job a lot more, frankly.

[00:16:29] Jessica Ginsburg: Just because we have looked at a business and assigned it a high, medium, low, and put it where it needs to go in our system. Nothing is static. So four years ago we might’ve learned about a company and it might’ve been too small because of XYZ.

[00:16:43] And so we stuck it in a bucket and maybe we reached out, maybe we didn’t, but four years later, all of a sudden, that company that was too small might be big enough now. And because everything is constantly moving and evolving, we now have time to go back and say, Hey remember all those companies that are lows, can’t we go back and see it.

[00:17:04] Now, maybe those can be elevated, and maybe those should move into higher priority areas. And so having the time to do that, and again, some of that is automated, but it’s just freed up so much time.

[00:17:17] Katie Mesha: Yep. I always joke. Our data isn’t like a good wine. It does not get better with age.

[00:17:22] And so when we have these tools in place, it gives us the opportunity and making it easy to create reports. Create the things that we need. So on a weekly, monthly, quarterly basis,  we can be updating what we need to update. 

[00:17:35] Kjael Skaalerud: Excellent. And then, of course, acting on the insights that you’re able to glean with these tools. Secret sauce right there.

[00:17:44] And, what does this process look like?

[00:17:46]Jessica Ginsburg: So we have a third leg to our BD tool. We have a third colleague, John, and typically, Katie feeds John. John sends out, all of those outbounds, and then, responses come to him. So he will typically field that first call, really work on building that relationship, and telling the story of who is LFM.

[00:18:07] Why is LFM different? Why would we make a good partner? What value can be brought to your business? And then, every business is unique, every process is unique. And so after that first call, it can go in, multitudes of different directions. But in an ideal world, we take what John has learned, to our broader deal team, assuming it’s a good fit, for LFM.

[00:18:29] And then we’ll tag team it between BD and deal execution until deal execution really picks it up and runs with it. But there’s typically a handoff at some point, along the way, 

[00:18:41] Jeff Williams: Pivoting just a tiny bit, talk to us about, manufacturing businesses, not these sort of lofty cloud companies with all this cash on the balance sheet type thing.

[00:19:06]Maybe some were essential, maybe some weren’t, but there was this sort of moment where this hit everybody at the same time, including you all. And you were in, an amazing position to, begin probably a lot sooner than others. Reaching out to people who presumably already were thinking, Hey, we might need some help there.

[00:19:26] This might be kind of ugly. Tell us a little bit about how you reacted back in March. 

[00:19:31] Jessica Ginsburg: Sure. We typically have sort of a target number of outreaches per month, per quarter, and then a targeted response rate, which leads to the targeted number of calls.

[00:19:40] When COVID hit, it felt like, okay, everything’s off the table. We have no idea what’s going to happen and what this means, but, we still have jobs to do, and we still want to maintain some level of activity. And so we thought, okay, let’s take a step back and let’s go really, really broad let’s focus on volume, and let’s just see what happens.

[00:19:59] Let’s touch as many companies as we can touch. And response rates are probably going to be low because people are busy. Some people aren’t coming into work, a lot of business owners woke up to their worst nightmare and they’re just trying to figure out how to keep the lights on. So we did and we were able to do this very quickly, and maybe can walk through this in more detail, but we basically pulled a very large VAT of owner contacts.

[00:20:23] And we sent out an email that was, I would say, carefully crafted to say, Hey, we’re LFM, we know a whole lot about manufacturing. This is what we do every day. We own, 10 manufacturing companies. Happy to talk about what we’re doing and how we’re reacting within our portfolio.

[00:20:40] If that’s helpful to you, let us know we’re here. Our emails aren’t aggressive, but there are certainly a little bit more forthcoming, Hey, we’d love to get to know you because we might want to invest in you. We took a little step back from that to say, what can we do to help.

[00:20:55] Jeff Williams: And what was the reaction? I have to imagine that again, all of us went through this, but for business owners, it’s really a different sort of situation.

[00:21:10] Jessica Ginsburg: Yeah, so as expected, it was a lower response rate, it was a lower response rate on a much larger batch of emails.

[00:21:19] There were, several handfuls of people that said, yeah, I would love to learn more, what can you tell me? And, we had the business continuity planning document that our team put together that we distribute to our portfolio companies and we shared that with people who were interested, in it in hopes that they could learn something more. Just to create that touchpoint so that six months down the road, when hopefully we’re on the other end of this, They say, Hey, I remember that company and John can reach out and say, I know that was really tough back then, but how are things now?

[00:21:50] And so it just felt like a really good way to make that initial connection. 

[00:21:55] Jeff Williams: Those are the razor-thin margins in this market. Right? That could be the difference,  being able to spin up and leverage this technology to say, Hey, we can reach out to these people. And many of them may be held up at home. And so they’re not paying much attention. And so you expect lower response rates, but man, there’s value in the power of the ones that you reach is pretty incredible.

[00:22:17] And that becomes, the sort of razor-thin difference that the technology can enable. 

[00:22:22] Katie Mesha: Yeah, with the technology. We already had our foundational base. Within a week we were able to reach out to over 10,000 of our prospects. 

[00:22:31] Kjael Skaalerud: And what did some of those touchpoints look like? Generally?  

[00:22:36] Jessica Ginsburg: We lead with email. We feel like in this day and age, how many times did your phone ring a day? And you’re like, I don’t know this number and you put it down.

[00:22:45] So we tried that in our early days at LFM and just found that if we could send an email, tell a story, give the audience a chance to check it out or website and figure out why are we different? Why are these people not like every other firm out there? Be a little more thoughtful about it, that the responses would be more thoughtful, and that has proven to be successful.

[00:23:09] So we still lead with emails and what’s great about the technology is I might not get a response from you, but I can tell if you’ve opened my email six times. So if you’ve opened my email six times, but you haven’t responded, I know you’re thinking about it. So that might be someone that John might pick up the phone and say, Hey, it’s John.

[00:23:27] I sent you a note, not sure if you saw it or not, I just wanted to try to connect. So we use the phone as a backup and then as a prescheduled call. 

[00:23:37] Look, it’s the ads that we all see on Instagram and Facebook all the time.

[00:23:42] And it’s like, how did she know I was looking at new sneakers, but I like those. So we’re, trying to do some of that. I think one area where we could do better is more integration with LinkedIn, but that’s another great example. You can know if someone is checking you out.

[00:23:56] Then you call them, right? It might feel like the right time to have that conversation. 

[00:24:02] Kjael Skaalerud: Speaking of LinkedIn. How much are you leveraging LinkedIn today in this process?  

[00:24:07] Katie Mesha: SourceScrub, one of the data points that they pull in is LinkedIn.

[00:24:13] So it’s nice that when we found a data source, that is not only the independent resource. Research that they do that they also pull in from LinkedIn. So I know looking from SourceScrub that has some of the LinkedIn data, but looking at contact profiles and messaging through LinkedIn, I think is an opportunity for us.

[00:24:33] Jessica Ginsburg: Yes. And what I have learned over the last couple of years, there are people that are so deep in LinkedIn. It almost functions as a CRM. They are using a sort of special sales navigator add-ons and things like that. And so I do think that it’s an opportunity for us.

[00:24:51] And honestly, I think that we could hire an entire extra person to just live in LinkedIn. I think one of the challenges with LinkedIn is that everyone in our industry uses LinkedIn, right? All the investment professionals. And a lot of operating companies too, but the business owners we’re targeting might not be in the LinkedIn social media generation.

[00:25:16] We’re talking about manufacturing companies often owned by people nearing retirement age, and they’re just not focused there. So I think that if we were looking for tech companies, consumer business, lots of other end markets, I could see it being even more useful.

[00:25:33] I would bet that a large percentage of business owners of the companies that we want to dig into are not active on it.

[00:25:44] Jeff Williams: Yeah. And talking about data generally, we’ve talked about automation kind of artificial type intelligence and then the proprietaries sort of relationship stuff.

[00:25:54] And so just to be sure for, viewers and attendees here today, functionally, the way you guys are oriented, SourceScrub is a key part of the equation here in that to Katie’s point, it’s using LinkedIn as its own source, and then it’s helping you identify the people that they should be calling. Then Altvia more generally maintains the proprietary stuff: when have you called them, when did you email them?

[00:26:21] What was the sort of reaction and what were the touchpoints and what have you?

[00:26:26] Jessica Ginsburg: Yeah. And Outreach, which is on the other side also, connects back to Altvia. So Altvia is sort of the tie that binds. 

[00:26:37] Jeff Williams: Yeah. On the  LinkedIn point, there’s been some well-documented sort of mega tech drama over LinkedIn. Salesforce having sort of been at the altar with it to acquire it originally and then Microsoft’s sort of swooping in and an interesting sort of, a couple of years since that, the data and the availability of it has not been quite as ideal as some would hope, but just looking more broadly around the ecosystem.

[00:27:04] There’s a lot of really interesting things, I think going on one of the companies we had talked about previously with which are there, you guys are familiar with this company called DataFox. It’s now owned by Oracle, but what I find really interesting with DataFox and we’ve got a very robust integration with DataFox. 

[00:27:23] But it is very signal-driven, right? I alluded to this earlier, but Hey, you really do have this practical application of AI in that, Hey, we’re interested in software companies or manufacturing companies in this geography with this kind of profile, and let us know anytime there’s a new executive.

[00:27:40] When you step back and look at all this knowledge, having data, tell you when something has happened in the company, that might be a target or good opportunity to reach out together with having good, clean, reliable, contact information.

[00:28:00] And, there’s a number of ways that one can arrive at this really, that sort of topic today is, what are the bits and the pieces out there that you can put together and combine them with your proprietary process and create leverage and you guys are, seem to be doing it amazingly.

[00:28:17] So I don’t know if there are any other pieces that you mentioned. Outreach, which is an email kind of sequencing tool. And we happen to use Outreach as well. We’re very familiar with it and integrate it with Salesforce in our own process. So I think we kinda covered really the three key pieces.

[00:28:32] Anything else that, are top of mind problems that you’re looking to solve or things you’ve had experience with?

[00:28:39] Jessica Ginsburg: I would say right now we feel like we’re in a good place. There are always little bumps, but Katie thankfully loves getting to the bottom of those. But, we feel like our process is optimized, but it’s Katie alluded to this earlier.

[00:28:54] Our team is comprised of a whole lot of engineers and, manufacturing minds that grew up in these sort of lean cultural environments where. It’s really important to not rest on your world. It’s important to always lookout for what’s next and how can we be better and how can we do it faster and be more efficient and all of those kinds of things.

[00:29:16] So we do make it a point to always know what else is out there. We get emails to demo certain products that, might look like a SourceScrub or look like Outreach or looked like something totally different. And we do try to evaluate those all the time and think through, okay, what could this do better?

[00:29:35] What would be the pain points? And so we try to be really thoughtful about always improving our process. 

[00:29:44] Jeff Williams: Yeah. So when we think about AI, I’ve been coming back full circle.  I think in the absence of full definition and full understanding of how it will play out in this market at a more practical level, it really just becomes about using data, which is this sort of intelligence and applications.  That can say, Hey, what are you interested in getting out of this?

[00:30:07] And then being told when it’s available. It’s a very non-kind movie grade future, but the leverage is just tremendous, right?

[00:30:18] Jessica Ginsburg: Yeah. 

[00:30:18] Katie Mesha: When I think about where we’ve come from, it’s having the AI, and having these automated systems, it’s just very consistent.

[00:30:25] We started our carriage being pulled by four undergraduate interns, that was our AI at the beginning of time. And it is just nice to have the consistency that these tools provide.

[00:30:40] Jessica Ginsburg: And the technology, it checks up, so when we send out emails to 100 business owners when we get five responses, that technology reminds us, Hey, you better check in with the other 95, don’t forget about those guys.

[00:30:51] So, we are very grateful for the technology. We did love those interns though. 

[00:30:58] Jeff Williams: Well, when the interns aren’t having to do certain things, then again, it comes back to what could they be doing?    

[00:31:06] Kjael Skaalerud: Wow. Well, Jessica and Katie, it seems like you both have done a truly phenomenal job using tech to increase your operating leverage as a firm, and drive larger and larger outcomes. So, that sounds like a legitimate edge in the market. Pretty cool.  

[00:31:18] Katie Mesha: Without having to spend time, entering line-by-line addresses for the businesses, I can spend time creating reports on the data, creating those fully in searches too, set those reminders. If there are any new companies that come into the searches, it just allows me to be more thoughtful and strategic rather than like the tedious work. 

[00:31:39] Kjael Skaalerud: Here’s to leveraging technology to be more thoughtful, and here’s to continued growth at LFM.

[00:31:44] Jeff Williams: Yeah. Thank you guys for letting us be a part of that. We’re super proud to be a  part of your success and love hearing about this stuff from you guys and love that you are pushing us as well.

[00:32:00] Jessica Ginsburg: You all made it super easy.