What’s the Deal with All These Deals?

Nothing is a surprise after 2020. With all of the tumult that happened during the pandemic, including decimation to global economies, it seems that venture capital held strong and is performing better than ever when it comes to your deal team. 

After a record year, 2021 started off strong and Q1 showed an increase in investment, exit, and fundraising activity over the prior year’s first quarter. According to the Q1 Venture Monitor PitchBook report, $69 billion was invested into VC-backed companies, a 92.6 percent increase over 2020 Q1. Most of that capital was poured into late-stage investments yet angel/seed and early-stage investments remained robust.  

Where did this record-high deal volume come from?

Speed of Diligence

The pandemic changed the way that companies do business worldwide, including private equity and venture capital. With the wide acceptance of working from home, lack of travel, and normalization of video meetings, some of the deal bottlenecks were removed, resulting in faster-paced deals. 

Decisions that used to take weeks or months are now decided in a matter of days. Making a deal is no longer dependent on coordinating busy schedules and flight plans. It seems that deal team diligence processes have become streamlined and the lags that would normally stall a deal have been removed. 

High Amounts of Dry Powder

Over the past year and a half, we’ve also seen an increase in marketable securities that are low-risk and highly liquid. The beginning of 2020 saw unprecedented sums of dry powder with more than $1.5 trillion available to fund managers worldwide. 

Dry powder funds, kept in reserve in case of emergencies, continue to be strong. With a high amount of dry powder at their disposal, firms were able to invest in opportunities as they arose and quickly fuel growth for portfolio companies.

Good Performance

The performance acceleration achieved by active venture capital funds recently is part of a longer trend that we’ve seen over the past decade. VC funds have been breaking record after record, an evolution that mirrors the progression of the valuation of listed tech companies. 

While the returns have multiplied, it’s definitely not a sure thing. Risk has gotten riskier. Institutional Investor found the difference in performance from those deals at the top and those at the bottom reached a record high with the total value paid in (TVPI) spread peaking at 1.98x. This divergence from previous patterns could be an indicator of more challenging market conditions in which some firms thrive and others increasingly struggle.

Even with risk remaining a factor, the possibility of handsome rewards has had a hand in increasing deals. Megadeals, deals at or over $100 million, are on a hot streak, and 2021 is already delivering multi-billion dollar exits. 

How Your Deal Team Can Adapt

With the new fast-paced speed of diligence, unprecedented amounts of dry powder, and record-breaking performances rocking the US market, it’s more important than ever to have the right tools in place to support your deal team. Teams don’t have time to guess what investors are thinking. The opportunities are great and those who are able to take action fast and provide top-notch investor relations will come out ahead. 

Industry-specific solutions, like Altvia, allow the deal team to have great visibility, match the speed of deals, gain insight into investor interests, and prioritize deals that will yield the best performance. 

Looking for an industry-specific solution to help your firm manage the deal process? Request a demo of Altvia.

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.