Different Ways Firms Analyze, Forecast, and Evaluate Investments

The industry has seen a significant uptick in investor demand for better-performing deals and asset classes, and a solid investment management strategy is a core component in meeting that demand. As part of that strategy, Private Equity and Venture Capital are evolving not only to better understand the immense value data and analytics can bring to the firm, but also meet the needs of stakeholders demanding greater transparency in reporting ​​and more insight into valuation processes. 

With private equity firms experiencing a rising pressure to utilize both data generated from operations as well as the industry, PE/VCs need to not only understand the value of their data generated through internal operations (and how this might affect the information provided to investors and key stakeholders) but also how to use a combination of company-generated and industry-level data throughout the entire investment lifecycle—from unlocking new opportunities within the market to making better-informed decisions.

So how can your firm’s investment strategy benefit from data-driven insights, specifically? Read on to find out. 

Better Analysis Starts with Better Access to Quality Data

Without access to quality data, firms put themselves at risk of making ill-informed decisions.  However, to fully leverage the power of data and analytics, many firms will need to upgrade their data infrastructure to incorporate AI and machine learning – critical components to drive innovation. 

Thankfully, due to the rise in demand, PE/VC-specific software solutions are available that can help firms shift from manual spreadsheet analyses and forecasts and projections (which are highly prone to human error) to a more streamlined portfolio monitoring process. 

For example, before streamlining their data and reporting, RCP Advisors had data and information scattered across spreadsheets and team members. They were running inefficient processes to try to make sense of it all. After implementing Altvia’s software solution, the firm was able to automate and enhance the reporting capabilities that they had been running manually, significantly improving their ability to present data in a usable format. 

With these newly enhanced reporting capabilities, RCP is armed with more informative, more insightful, and more accurate data, empowering them to make better-informed decisions throughout the deal stage. 

The Role of Data in Analyzing, Forecasting and Evaluating Investments

According to a report from The Wall Street Journal, 77 percent of PE executives conducted due diligence data analytics, while 68 percent utilized it during negotiations. From sourcing through to monitoring, data plays a critical role in each stage of the investment management funnel, and the ability to gather large groups of data together in a digestible format will help provide a more efficient and profitable business

Perform Stronger Due Diligence 

In the research and due diligence phase of a deal, firms can leverage data and analytics both internally and from the industry to look beyond the information provided at face value to better inform their decision-making. The pre-deal stage includes leveraging third-party online sales data to identify category trends, pricing, and validating assumptions about a brand before moving forward. 

Unlock New Growth Opportunities

When it comes to value creation plans, data and analytics provided through AI can help speed up the process while unveiling new growth opportunities. With broader data sources, firms can better understand the market, uncover consumer behavior and trends, and even develop data-driven insights to attract new customers.

Track Progress and Pivot in Real-Time

Along with unlocking new opportunities, sophisticated portfolio monitoring software (like Altvia’s!) can provide deep insights to help PE/VCs track progress against their investment management strategy and use new information to identify underlying issues, empowering them to pivot and course-correct in real-time.

Enhance Value for Portfolio Members

Finally, PE/VCs can leverage data and analytics to formulate a solid story to demonstrate the value created for portfolio members. For example, by leveraging both market and internal data, firms can more efficiently analyze businesses throughout the entire sale process and demonstrate robust data-driven strategies for portfolio members.

Level Up Your Investment Management Strategy

Data and analytics are invaluable tools for any firm’s investment management strategy and provide powerful insights surrounding portfolio monitoring and pre-acquisition research. But they also play a major role throughout every stage of the deal funnel—from due diligence to monitoring.

investment management strategy

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.