The Impact of Private Equity Technology on the Industry

If there’s a type of business that can ignore or refuse to implement new technology as advances are made and still be successful, we don’t know what type of business that is. It’s certainly not private equity firms.

In our fast-paced, highly competitive industry, firms that aren’t using purpose-built, state-of-the-art systems are at a distinct competitive disadvantage.

And firms that remain at the back of the pack don’t last long. 

 Private Equity Technology and Differentiation

 Competition in the private equity space is continually reaching new extremes. This ongoing escalation forces firms to reach new levels of operational excellence, personnel optimization, and data management.

 How do they support this continuous evolution? They stay vigilant, constantly scanning the horizon for the next technology solution to break new ground and enable improved operations. But operating more efficiently and effectively is really just a means to an end. The “end” in this case is creating clear differentiation from competitors.

 Is your firm the only one of its kind in the industry? It may have some of the best people and have an impressive track record of success, but no, it isn’t particularly unique in the services it offers. However, the combination of the skills, experience, and insights of your team with the communication, data management, and other capabilities of the right technology solution—now that’s something that can set your firm apart from the competition.

 And that differentiation can make all the difference in attracting investors and closing deals. Why? ‘

Because the stakeholders you interact with are just as busy as you are. They don’t have the time or resources to assess each one of the countless “middle of the pack” contenders. They identify a few that stand out, do a little research, and decide how to move forward. If you aren’t in that select group of finalists, you’re out of the equation.

How Firms Leverage Their Technology

 How do firms use technology to get ahead? 

For one thing, they use a CRM to manage their contacts. That’s the foundation for getting the right communications in front of the right people at the right times. They also make it easy to share resources securely with stakeholders, which increases transparency and helps create and nurture trusting relationships.

And underpinning all of these advantages is the implementation of efficient workflows. The easier it is to get day-to-day tasks completed, the more time there is for finding innovative ways to engage stakeholders and close more deals.

From “Nice to Have” to Necessity

 Not long ago, switching to a better CRM or an email program with enhanced features was something firms did if they had the time and capital to invest in those upgrades. Today, those tools and others that increase productivity and improve stakeholder relationships clearly have moved into the “Mission Critical” category.

But the good news is that it’s easier than you may think to implement a suite of private equity technology solutions. The first step is learning about what’s available.

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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