How Deal Teams Embrace Private Equity Technology to Stay Competitive

In the wake of the COVID-19 pandemic, it seems that many companies will continue to work remotely indefinitely, if not permanently. This poses a new challenge for capital market deal teams as they attempt to perform due diligence on companies they can’t visit. A process that used to involve multiple in-person meetings will now have few or none.

How will firms adapt to this change? It’s clear that they’ll have to rely more heavily on private equity technology. However, before implementing new tools or expanding your use of existing ones, it’s important that you prepare your firm for this new approach. In particular, it’s critical that you have a carefully crafted due diligence process that your deal team knows well and is comfortable with. The last thing you want to do is wrestle with making a somewhat arbitrary physical process work in a new, more virtual format.

Key Virtual Due Diligence Tools and Processes

As you look to “go virtual” with your due diligence processes, the first tool to acquire and master is a reliable video conferencing system. And it’s important not just to identify and implement it, but also to take some time to learn how to use it effectively. Online interactions can be somewhat awkward to begin with. You don’t want to compound the problem by being unfamiliar with how to share your screen, give another participant the ability to share theirs, etc.

It’s also vital that you have a fast and effective way to track interactions that you are having with the prospective operating company. This is especially important today since deal team members working remotely won’t have the luxury of sitting down with you in person to talk about your notes. When tracking interactions, it’s vital to link or “relate” records—contacts, deals, fundraises, etc.— to one another to create helpful context for other users at the firm.

Third-party apps are also likely to become a more important component of your “technology stack” as you move to virtual due diligence. Tools like SourceScrub, SalesLoft, LinkedIn Sales Navigator, and DataFox track and send operating companies and investor updates directly to your CRM, saving you time and help ensure accuracy. That is, of course, if your CRM has integration capabilities.

And finally, having a secure virtual data room and engagement platform like ShareSecure is absolutely essential in the due diligence “new normal.” Using an approach like simply sharing Google docs may be efficient for another industry, but due to lack of security for capital markets, is discouraged. Instead, deal teams should use an industry-specific tool that enables the safe sharing of a wide variety of file types. A purpose-built private equity platform provides many added benefits, like empowering team members to see who has viewed each document made available through the system and allowing remote document signing.

Take Decisive Action to Enable Effective Virtual Due Diligence

Firms and deal teams that try to “duct tape” their existing due diligence processes and make them work until the business world “gets back to normal” will be in trouble if it never does. On the other hand, private equity firms that embrace virtual due diligence and equip themselves to conduct it effectively will have a distinct competitive advantage.

Some degree of in-person—if socially distanced— due diligence interaction is likely to return at some point. But it’s better to assume that physical meetings will be few and far between, and prepare your firm to move forward accordingly.

If your capital markets deal team is looking for a way to better manage processes, download our free guide below Winning Deals in a Hyper-Competitive Market.

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 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 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 — 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.

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