How to be Proactive and Predictive in Private Capital

In order to be successful in today’s competitive economic environment, fund managers have to be able to differentiate themselves from the competition. If you are looking to help your organization stand out from the crowd, effective communication, relationship management, and business intelligence capabilities are crucial.

You have to get the intention of investors, understand their objectives, and provide them the information they need when and where they need it.

This is no easy task, and it is made even more difficult if you are using outdated methods to gather, manage, and assess investor data. Relying on spreadsheets or a rudimentary data collection system to store data is inefficient and increases the risk that key facts either are not tracked or are lost at some point in the process.

Plus, there are inherent security issues with that approach that can result in a data breach that is costly to resolve and damaging to your organization’s reputation. In addition, not using a business intelligence solution to gain insight about investors means you are failing to maximize the value of the data you are working so hard to collect.

For these and other reasons, purpose-built data/relationship management and business intelligence solutions are essential.

Gain Insight with a Technology Assessment

Where does your company stand in terms of having the systems you need to engage with investors in a way that drives better outcomes? It can be hard to get the proper perspective from inside your organization.

What many companies find to be enlightening is getting an unbiased opinion from outside experts. Our private equity technology assessment produces a detailed evaluation of an organization’s ability to collect, manage, and act on investor data.

With that appraisal in hand, they can determine what systems are needed and how they can move from technology that is a liability to solutions that provide a competitive advantage.

Transition to Advanced Private Capital Technology

There are four phases of investor relationship management. The Reactive phase is described above. Data is stored and managed in spreadsheets or in some other simple way. The information repository isn’t centrally located and accessible, and there are significant security risks with this data, which can contain sensitive information. It’s not unusual for companies to start in the Reactive phase. The problem arises if they stay there.

For organizations that are trying to be more strategic in how they manage investor relationships, next comes the Informed phase. Here, an effort is made to consolidate investor data into a centralized system. This makes the information available to people who need it and helps them better understand who the investors are that they are communicating with, what those investors are looking for, and how the company has interacted with them to date.

Where companies really start to develop a competitive edge is when they move to the Proactive phase. This involves being more intentional about the information they collect from limited partners (LPs). In some cases that means tracking things like the co-invest interests of LPs and noting what the company has presented to them and their reaction to the offers. This makes it easier for the company to reach out to the right investors in the right way when new opportunities arise. Organizations at this phase in their technology evolution typically use a powerful customer relationship management (CRM) solution specifically designed for the capital markets.

Finally, in the Predictive phase, a company uses tools to share reports and fund information and then track what investors do with that information. Monitoring and carefully recording an investor’s interests, and analyzing this data using business intelligence capabilities, enables an organization to understand investor behavior more fully. With these insights, the company can improve targeting and tailor communications to help increase interest and engagement from investors.

The Goal: Reduce Friction in the Fundraising Process

In short, the value of implementing advanced CRM and business intelligence solutions is that they simplify, streamline, and improve the fundraising process. Being proactive and predictive enables companies to interact with investors easily and effectively, and achieve their capital raise goals more quickly.

Learn more about how to differentiate your company in the private equity markets.

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.