The 5 Phases in the Lifecycle of a Private Equity Fund

Today, firms use interesting technologies to improve and quantify their processes but when compared to the vastly more impressive capabilities of modern data science techniques, Excel and Outlook just aren’t cutting it. 

By far the largest latency PE firms face today, is the lack of connectivity across its operations. For example, most firms will have a detailed Excel file with a list of all the prospective LP contacts their ex-investment banking analysts and associates connected with back on Wall Street. 

Some of the more technologically driven firms might even send this file to an outsourced marketing company that sends generic emails to these potential investors in the hope they set a meeting with one of the General Partners. While time-tested, this way of dealing with investors is rudimentary at best when we look at all the possibilities of raising capital with a modern tech stack. 

Fundraising isn’t the only stage of a firm’s life cycle where robust data analytics can drive improved results. Efficiently collecting, storing, analyzing, and presenting data will vastly improve a firm’s performance at every stage of the process. 

Communicating to Potential Investors

Fundraising is the first and often one of the most tedious processes for a firm. During this process firms are hounded with problems, many of which determine whether or not the firm will survive; dealing with constant rejection from potential LPs, updating pitch decks right before a meeting with an investor, modifying the presentation of the firm’s thesis for each investor are just some of the many examples of something that can go wrong in the traditional approach to fundraising. 

Proper data analytics uproot many of these issues from the source. For example, Altvia allows you to create ideal investor profiles which can be  matched to investor’s searching for firms increasing the chance of each LP meeting ending with a metaphorical ‘cheque’ so to speak.

One of the often-overlooked aspects of fundraising is the direct investor communications such as capital calls, firm updates, and even just meetings with the general partners all of which can be automated using the Altvia platform. 

Pipeline Management

The next stage is to deploy capital. This stage is the one that the vast majority of people attribute to working in finance. In reality, deployment really only takes up 20 to 30% of the average analyst’s or associate’s job description.

Deployment is often characterized mainly with sourcing New Deals that fit the investment thesis. This can also mean thinking of new industry niches and creating industry reports to seek out new avenues for investment. 

The implementation of software here, however, is there exists a massive amount of data spread out over multiple sources that can be quantitatively analyzed to immediately source, contact, and analyze prospective Investments. 

Altvia consolidates these data sources to create a dashboard of the most current Private Financial information for GP’s to use. Improve deal flow by ranking and sorting deals depending on attributes, attractiveness, and stage in the deal process. 

Portfolio Performance & Analysis

Managing already made investments constitutes the vast majority of what a PE firm does. Analyzing/adjusting investment company operations, identifying new strategic acquisition targets, and generally improving profitability of Investments is the real meat of the job.

The unique perspective that PE holds over investment management is that these firms have an inside look to both the company and the industry. Altvia optimizes this perspective to minimize inefficiencies in investment companies by comparing them to comparables in their space at every level of the company. 

Another advantage software gives PE firms is the quantitative method by which they’re able to analyze a company’s operations. Today, most investment companies have multiple sources of revenue, an ever-changing list of costs, and a medley of very different operational tasks. 

Connecting these disparate data sources always allows you to perform machine learning and other modern data analytics techniques to dynamically predict which operation desertions will end up helping or hurting the investment company. 

Instead of outsourcing operational management or having investment companies evaluate themselves, an upgraded tech stack can help PE firms get a more in-depth and personal control over their Investments. 

Fund Performance & Analysis

Once the majority of operational decisions have been taken and value has been added, it is time to analyze the fund’s performance. Most notably, this entails creating accounting reports, tax statements, in-depth capital structure statements, and other general reports necessary for the fund’s exit in the investment. 

Consolidating this data into these accounting reports is a time heavy task and an expensive one at that. Hiring an accounting firm to keep a track of a firm’s cash flow is a heavy recurring cost. Altvia’s centralized data collection, storage, and analysis is able to support data collection and support the collection process.

LP Engagement

Finally the last stage of a firm’s life ties back to our first one, Investor Feedback. 

IR is the real backbone of a firm and so having efficient, centralized software to manage it is ever more crucial. Announcing post-exit earnings to investors is a very exciting period for a firm and it should be treated as such. 

Furthermore, transparency with investors after an important exit is also crucial and so aninvestor dashboard is an essential part of any tech stack. 

An investor dashboard provides a way to self-serve metrics to track data visualization. Limiting LP requests for your IR team.

Combined with the aforementioned announcement and automation, Altvia’s software allows firms to focus on what matters most, financial analysis and value creation.

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.

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