Create an Excellent Investor Experience to Differentiate in Private Equity

This investor experience guide will go over…

  • Technology designed to support the Private Capital Markets workflow
  • The areas to consider during the fundraising stage
  • How to close a fund quickly by reducing friction
  • How to keep your investors coming back for more
  • The service secrets that lead to repeat investments

As we discussed in a recent webinar with PE Hub, GPs are finding it increasingly difficult to differentiate themselves. Fund managers are vying for the same LP dollars and LPs are demanding a better experience—supported by increased transparency and real-time data.

The key to differentiation is to create a stronger relationship, by providing a better investor experience. But how can firms, fund managers, and IR teams create an excellent LP experience to attract the top investors and opportunities?

First, let’s talk about the LP experience. In software, there’s a concept of “user experience”. This concept is at the core of software development and focuses on the overall experience that a product creates for a user, especially in terms of how easy it is to use, how much trust it builds with customers, and how pleasing it is to use. In the software industry, the user experience is paramount to customer satisfaction.

We believe this is a concept that translates to the LP relationship. For firms to differentiate, they must create an outstanding experience for their investors in order to attract investment.

What is an outstanding investor experience?

To start, it’s not about the what, but the how. The point isn’t what you’re sharing with your investors, but how you’re sharing it. How do your investors receive your information? Is the experience easy? Are you proactively addressing their questions?

Best-in-class GPs are working hard to define an LP journey and experience that drives elevated engagement with their LPs. This involves close consideration of how:

  • Investors receive documents and agreements
  • Firms manage communications around their annual meetings
  • Accessible performance data is for investors.

Infrastructure to support the investor experience

The foundation of the investor experience is technology. Software systems and data allow your firm to scale and grow while giving your people more time to proactively manage investor relationships.

Once the technology foundation is laid, the top firms are leveraging data—both proprietary and 3rd-party data.

In the past, fund managers might use a single solution to manage data. As the industry has evolved, firms are using a suite of best-in-class systems and connecting those systems to power their relationship management and scale their firms.

We’ve broken this evolution down into a maturity cycle.

The relationship management maturity phases

  • Reactive: In this first phase of the cycle, investor data is managed in spreadsheets or perhaps the back office team members are handling the management of the investor related data. It’s a rudimentary data system that isn’t centralized and likely has security issues.
  • Informed: The firms who are in this phase, truly start to consolidate all of the investor data into a central system and, as a result, have visibility into who their investors are, what their investments are across the multiple funds, and what communications have occurred with the LPs. These firms understand the full breadth of their LP relationship.
  • Proactive: A firm that is proactive is continuing to amass more information on their LPs and expanding the insights they have. We see some of our fund manager clients start to track things like co-invest interest for their LPs, what kinds of co-invests those LPs are interested in, what your firm has already presented, and where they’ve express interest or turn down opportunities. Essentially, firms who are proactive are tracking the historical exchanges with their LPs, so when new opportunities arise, they can be more targeted in which investors they offer those opportunities.
  • Predictive: Our best clients are leveraging tools and sharing information with their LPs with the ability to track what the LPs are doing with that information. Firms that are operating, using a predictive approach are using tools to share reports and fund information and then tracking what the investors are doing with that information. This allows them to track behavior and monitor their investor interest so that they can improve the targeting and personalization of their communications.

The firms that are operating in the proactive and predictive phases are the most successful in attracting and building relationships with investors. They leverage technology and data through each stage of the investor experience.

This brings us to our guide—Creating an Excellent Investor Experience. In our guide, we cover how the top-tier firms are differentiating themselves to attract top investors by leveraging technology and data. This guide shares thoughts, ideas, and discusses:

  • Technology designed to support the Private Capital Markets workflow
  • The areas to consider during the fundraising stage
  • How to close a fund quickly by reducing friction
  • How to keep your investors coming back for more
  • The service secrets that lead to repeat investments

LP Experience

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.

investor experience