Key indicators that your PE firm needs to implement new technology

Private equity (PE) leaders know that their firms must continually evolve to stay competitive in the industry, and that the right technology can be critical to helping their firms grow and remain relevant. But when is the best time to adopt new technology?

Before adopting any additional tools, you and your team should first assess your firm’s internal readiness, as well as external factors like market changes. Learn about the top indicators that signal whether your PE firm should implement new technology.

Inadequate visibility

To make better-informed decisions, PE firms need reliable, real-time insights and full visibility into their data. Unfortunately, many firms lack advanced, connected technology, so their teams struggle to quickly access critical up-to-date information, leading to multiple problems:

• Difficulty determining team members’ workloads and task allocation
• Inability to answer impromptu historical and market questions during meetings
• Reliance on incorrect or outdated information

Difficulty assessing team bandwidth

Because a large amount of fruitful buy-side work is done behind the scenes, it can be difficult to accurately assess your team’s bandwidth. Without real-time visibility into your team members’ workloads and relationship-building activities, your leaders will be stuck regularly asking each deal professional whether or not they can cover new work.

Leaders must then spend valuable time assigning tasks to those team members and monitoring their progress. Even when tasks are completed, leaders have no way of gathering hard data to determine the quality of each team member’s outreach efforts.

Dealmakers also suffer when there’s too little visibility into their team members’ status. When they don’t have visibility into their colleagues’ workloads, it can become nearly impossible for team members to properly support one another — by, say, sharing important status updates or completing a follow-up action on time.

To effectively support your team members and leads, your firm should invest in a data management system that provides the transparency your professionals need to determine the most efficient way to allocate resources and move tasks forward.

Inability to answer questions on the spot

PE leaders often receive impromptu questions in meetings — from subordinates, partners, intermediaries, service providers, and limited partners.

• Has the firm worked on an opportunity like this before?
• In what ways is this deal similar to other deals, and how does it differ?
• Who worked on previous, similar deals, and what insights and takeaways did they gain?
• How much profit did a particular deal or syndicate generate, and what were the factors involved in that success?
• Who is new to this sector or geography, and are they doing anything new or different that is impacting the sector?
• What work have we previously done with the client’s legal or consulting teams?
• What’s the status of a particular deal in progress, and what needs to be done next to move it nearer to closing?

Unless your professionals know where and how to access this information, answering questions on the fly can be daunting. And when your teams appear to lack confidence or expertise in their answers, your investors will soon doubt your firm’s ability to successfully close their deals. By investing in a data management and reporting solution that your professionals can use to easily access the information they need, you can empower your professionals to show up well in meetings and demonstrate to your investors that they’re in capable hands.

Incorrect and outdated information

Without the right technology in place, your firm may find it difficult to organize and update data, leading your professionals to share the wrong information.

Embarrassing errors are often due to analog processes. To solve this problem, your firm can invest in deal management technology that organizes your data and provides real-time updates, helping your dealmakers avoid confusion and remain up to speed.

Preventable losses

When trying to add value to your business development and deal-sourcing initiatives, you always have to make sure to protect against losses that could negate your gains — including loss of time, institutional knowledge, and data assurance.

Wasted time

An inadequate PE tool can hinder your visibility, impede talent allocation, and restrict your and your teams’ ability to issues as they arise. This is a serious problem, as new research shows that slower deals cost more to transact.

Compensating for your inadequate PE solution takes away valuable time from your dealmakers — time they could be better spending on sourcing and moving deals through the pipeline. A partner at a buyout health care firm discovered this was the case for many of his colleagues soon after joining the firm:

• A high-value investor relations professional at the firm was devoting hours each week to recording deal team activity data and performing due diligence on targets when she should have been building relationships with intermediaries and limited partners.
• Another experienced dealmaker was spending time collecting spreadsheets and turning them into Monday morning meeting reports.
• A founding partner was still using a paper-based day planner, forcing one of his analysts to copy his handwritten appointments, task lists, and contacts onto the team’s agenda each week.

Investing in automated technology can help improve efficiency across your firm and give time back to your teams, allowing them to focus on bringing more value to the firm.

Loss of institutional knowledge

Institutional knowledge is an intangible but highly valuable asset that firms should protect and preserve. If a partner at your firm retires or moves on, you need to ensure their expertise and knowledge don’t leave with them.

By investing in the right information system, you can prevent insight attrition when team members depart. An advanced data management solution will collect and organize information from both new and seasoned team members and help your PE firm successfully build its institutional knowledge.

Questionable data security

The financial industry continues to experience increases in the number and severity of breached systems and records. Research shows that banks and investment companies are the second and third most heavily targeted institutions in the sector, respectively. This is a particularly unnerving statistic for PE leaders, considering the high-stakes nature of the data their firms handle every day.

If your firm and contact data aren’t as secure as they could be, your firm is at higher risk and could face significant financial and reputational damage. Answer the following questions to start assessing your firm’s security level:

• Do you know what (if any) industry-standard security certifications your current tools have?
• Can your current system handle contact and relationship data, transaction information, and workflow management?
• Are you able to customize permissions and access control  so that only the right people can access sensitive information?
• Is your data safely backed up?
• Do you have a contingency plan in place?
• Does your data live in a cloud-based application (rather than email inboxes, spreadsheets, or notepad apps)?
• Do your current data management tools offer any customer support to check on the above best practices?

If you answered “no” to any of these questions, consider adopting technology with tighter data security measures.

Increasing competition

PE firms must constantly evaluate various risks and valuation factors, including recessions, inflation, growth, and a mass dismissal of IPOs as a favorable exit strategy. However, navigating these issues is difficult without full transparency into your firm’s data, leading to preventable losses.

Previously, most buy-side dealmakers simply tolerated their limited visibility, and reactively addressed their losses as best as possible. Now, more and more acquisitive teams are adopting updated technology to proactively prevent losses, improve efficiency, and increase profitability. In fact, 9 out of 10 PE leaders say that the proper technology can help raise more funds and attract more targets.

Don’t let your dealmakers fall behind increasing competition. Adopt better technology so you can close more deals faster; otherwise, limited partners, targets, and private company operators will take their business to rival general partners, sponsors, brokers, and bankers.

Are you ready to implement new technology today?

Unless your PE firm is willing to evolve and address process inefficiencies, you will lose business to your competition. Support your teams by investing in new technologies like DealCloud, a purpose-built relationship and deal management system that streamlines the unique work of PE professionals.

Schedule a demo today to learn how DealCloud can support your firm.