How to Sharpen Your Informational Edge with Investor Relations Software

Just this morning, at a roundtable of IR professionals from well-known private equity and venture capital firms, I asked the question “how many of you are using investor relations software to score or predict the likelihood of prospects to commit to funds you’re raising?”

For a good ten seconds, it seemed as if there would be no reply whatsoever from the participants, but ultimately one brave soul did offer up something more or less equivalent to a manually calculated, somewhat arbitrary, and highly subject to interpretation method they use to figure how engaged a prospect is or how likely it is for a prospect to actually convert via commitment.

I left the early part of my career in venture capital not to shame how firms in this market behave, but rather to take advantage of an amazing opportunity to provide technology to these firms; the result of which would create opportunities for the firms themselves to use technology as a strategic weapon. It is my belief that there have never been greater opportunities for investor relations software to change the way PE/VC markets operate than there are today, and I want to start with this concept of predictive scoring, just one basic example of the application of technology.

Measuring how engaged a fundraising prospect is with any given GP raising capital is something that is proprietary; in a world where enrichment providers abound and help save us the mundane, manual entry of data that is objective, there’s simply no way for measuring engagement that doesn’t involve proprietary technology. Said another way: an enrichment provider like Pitchbook, Datafox, Preqin, or CapitalIQ is neither fit nor able, to tell you about the correlation between the messages and channels you use to the likelihood of closing the target. Not in terms of raising capital nor sourcing investment targets.

There are a number of firms we work with that arrive at this, however, and they do so via a modern mix of CRM (the source for proprietary actions taken and other data) and proprietary analysis that most often takes the form of modern analytics applications within the investor relations software. Where yesterday’s CRM is oftentimes seen as a management-driven hassle that users have no choice but to use, today’s CRM is an important provider of critical activity-based data and their associated outcomes, and which provides data to capable analytics applications that in turn start to help us understand patterns and correlations between activities and outcomes.

Let’s look at a basic example of this within the context of deal sourcing efforts. On the surface, every outbound firm has its deal sources, and a certain number of them will be considered “proprietary”. Many firms even have a surface-level assumption about how many of those deals — from a given source — they’re able to close. Note that I’m deliberately choosing to avoid using the word “understanding” in favor of “assumption”. The way I’m defining “understanding” in this case can be widely interpreted, and a simple number of deals closed is a perfectly fair definition by anyone’s standards, but it is my belief that there’s a definition that most firms would prefer. That definition considers the following:

  1. whether those deals are deals that are likely to close to begin with
  2. where deals from this source get stuck and/or how much time is spent to get them closed
  3. whether there are efforts and activities that correlate to increasing the volume of deals from the given source (if it is so desired!)
  4. whether the time spent on deals sourced from a given source is actually worth the all-important opportunity cost of lesser-considered sources

I’m attempting to stay relatively high-level with these considerations, but the last question above is the most important because it begins to consider whether there is a more effective use of the same resources. An easy way to think about this is to understand — through proprietary data — whether there is a “better” source for your efforts. In this case, “better” may not mean higher volume; it may mean a greater likelihood of success, or greater return on investment. More importantly, consider whether increasing the activity and engagement with that source has the effect of increasing the volume of higher quality deals.

Let’s pause there for a moment, and take the same proprietary data and analysis and port it to our understanding of fundraising efforts. Which activities lead to the highest conversion? Which attributes (location, size, mandate, etc) lead to an increased conversion with new LPs? Which messages are most effective? What is the typical engagement path and how long does it take to get to conversion? Which activities should we be taking and when?

But where proprietary technology and data begin to get extremely powerful is when we combine these two examples and begin to tell fundraising prospects a data-driven story about how our story is unique and how we’re differentiated in our ability to find the best opportunities. If that is where it begins, it is most certainly not where it ends; armed with the ability to understand our proprietary data and analysis of it, there’s no reason we can’t expect to begin to better understand how to win more competitive deals, both in terms of understanding deal dynamics and in terms of our ability to communicate what makes us differentiated when presenting to management teams.

In a time where the world is attempting to automate as much as possible, we must be careful to understand and distinguish between the time-saving automation efforts, and the invaluable proprietary tactics and data that can’t be automated. The combination of these two, and the insight therein is where true differentiation lies.

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 relations software