The Ultimate PE VC Tech Stack

Digital transformation for the Private Equity and Venture Capital industry was well on its way pre-pandemic, and the global health crisis set that trajectory years ahead. With digitization in full effect, what will VC firms look like after this evolution? 

What are the characteristics that firms need to adopt to exist in an optimal state? 

This is an important question to answer. PE and VC firms must align themselves with this digital transformation or be left on the sidelines. Knowing what to expect from the massive digital shift can help firms set their teams up for success. 

There are core criteria for PE and VC firms to employ that will bring them into the modern world and help settle them at an optimal state of operations.

This is what the optimal state firm will look like: 

Data is centralized

Firms will leverage a centralized data warehouse to store their most profitable assets – proprietary data, deal-making information, investor relationship management, and capital insights.

Sophisticated SaaS and tech

Speaking of technology, along with a data warehouse, the modern VC and Private Equity firm will use sophisticated tools. To be competitive, firms must invest in top-tier SaaS technologies. 

The days of managing everything in Excel are over. 

Adoption of today’s platforms for investing is a requirement. 

Some of the ideal tools in the modern fundraising tech stack include Preqin to target LPs, Pitchbook for potential investments, and Gartner for research. 

Firms often ask the question of whether to build or buy and with today’s SaaS-building boom it’s always smart to explore the tools available before building a custom in-house tool. 

Move from manual to automated

In the future state of Private Equity and VC, manual activities will be minimal. Ideally, firms will adapt and leverage tools that enable automation. In today’s modern firms, email exchanges are captured instantly and conversations then set off intelligent automation like reminders to follow up in a set number of weeks. 

Expect that highly personalized automated communications can be executed based on specific criteria, and fundraisers only spend time chasing the most engaged investors. 

Over time, and with machine learning, engagement patterns help to tune the effectiveness of these campaigns to help conversion rates soar for future investors and funds – all without manual actions like emails, spreadsheets, and data entry.

Measurement is always-on

In the future-state firm, all activities are measured to provide visibility and accountability. Pulling reports is a one-click effort rather than a half-day project for an analyst. 

Aggregated data feeds a business intelligence tool, which turns spreadsheets into interactive visualizations that provide real-time interactivity to identify trends, industry abnormalities, and other important business indicators.

Precision dominates

Optimal firms improve quickly because they can precisely pinpoint which emails resulted in the best outcomes. 

As an example, associates are compensated on investment velocity – like the time from initial contact to investment and rate of improvement across the stages of the fundraising pipeline.

Firms ready for change and open to advancement will arrive at the optimal state when they can master the insights layer. 

Story-worthy insights

With a futuristic tech stack, automation firing on all cylinders, and your data fully centralized, your firm is almost at optimal. But it hasn’t arrived quite yet. 

The optimal state firm is masterful at taking all of its data and turning it into crisp, compelling, insights. More than a dashboard. Beyond a PowerPoint deck. 

A firm that can deliver a message around portfolio value creation that inspires an LP will win. 

Here are some examples of how an optimal firm might use insights to make better decisions:
  • When we buy a company with X percentage of the Total Addressable Market (TAM) and Y in existing sales pipeline, with a concentration of competitors that looks like Z, we can expect 30% growth in top-line revenue over the first six months of owning that asset.
  • When we see communication velocity (i.e., email exchanges / calls in a week) reach eight interactions a week, we have a 30% likelihood of bringing on the investor.
  • If we don’t speak with a prospect for 10 days and they open an email fewer than five times, we have a 5% chance of securing an investment. 

Conclusion

VC and Private Equity firms must leverage the technology available to maintain and defend their position. It’s no secret that new players with even more revolutionary ideas enter the market every day. 

What firms have on their side is a natural sense of healthy competition. Choose to treat this new era as another challenge pushing your firm to a higher level of excellence, and you will thrive.

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.

private equity tech stack