Why Private Equity Deal Teams Need Technology

As everyone in Private Equity understands, a deal isn’t an event that happens when an agreement is signed. It’s a process that evolves over time and culminates in a mutually beneficial relationship. Deal flow management gives your deal teams the visibility it needs to track the data you have on a potential investment, including:

  • Deal information
  • Fund details
  • Due diligence

The efficient management of deal flow is one of the biggest factors in a firm winning or losing deals. Consequently, it’s not something that should be left to chance.

A Private Equity CRM is Essential for Deal Teams

In order to be successful, deal teams have to be able to find any resource they need quickly. That means storing and maintaining data in one easily accessible customer relationship management (CRM) system.

Long gone are the days when a PE firm could consistently win deals using a random collection of Excel spreadsheets and documents that “lived” in digital and printed form in countless locations. 

Today, the firms that thrive are those whose deal teams leverage highly coordinated and orchestrated activities among team members to find targets, perform due diligence, and close deals.

Ensuring that those activities can take place efficiently is especially challenging in the wake of COVID-19. 

Many firms are choosing to maintain the remote-working model that they were forced into by the pandemic, which means they need tools for effective data sharing now more than ever.

Technology That Supports Deal Teams in the Due Diligence Process

While all aspects of deal flow management are important, the due diligence process is crucial to reaching the right conclusions and making profitable decisions. 

A single source of action helps deal teams assess strategy, operations, and marketing/sales capabilities—three vital aspects of a company—and get answers to key questions, like:

  • What is an organization’s position in its market? Are they the leader? The fast-rising newcomer? A solid, middle-of-the-pack performer?
  • How optimized are their operations?
  • Are there ways to reduce the amount of working capital needed, get more value from existing assets, and better manage costs?
  • How well does the company market itself, pursue new business, and close sales?

With make-or-break decisions riding on so many questions, a centralized source of clean, current data is an absolutely vital tool for deal teams.

Our AIM CRM platform provides that specialized data repository. It allows teams to:

  • Standardize the deal funnel with recognized stage milestones
  • Ensure there is clarity on next steps
  • Customize due diligence requirements

Plus, the fact that information can be added to AIM not only from a desktop computer but also from a mobile device helps ensure that data is clean, fresh, and available in a timely manner.

As Volume and Velocity Increase, Deal Teams Must Keep Pace

The term “digital transformation” is widely used in business today. Nowhere is this concept more relevant than Private Equity. With many thousands of PE firms worldwide and many thousands of deals closed annually, competition is fierce. 

Aggregate deal value in the U.S. alone has reached nearly half a trillion dollars in recent years.

As a result, deal teams are having to work faster and smarter to stay competitive and continue delivering good risk-adjusted returns. They’re finding that the right technology can help them collect, transform, search, assess, and perform predictive analytics on data in order to gain an advantage over firms that are still relying on outdated, manual processes. 

Plus, a cutting-edge system allows deal teams to see how much is left in a fundraising process so they can plan accordingly.

Considering a Technology Upgrade?

If your deal team has been using the same deal flow management processes for many years, it can be difficult to envision how those procedures could be enhanced. The best way to understand the potential for improvement is to learn more about the advanced systems that are available today.

Gathering “intel” on them—even if your deal team isn’t ready to make a change yet—positions you to leverage these systems when the time is right for your organization.

Learn more about how Private Equity deal teams can benefit from a technology stack with our free guide, Winning Deals in a Hyper-Competitive Market.

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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