Building and using private equity institutional knowledge

Every person on your team possesses knowledge that could be leveraged for your private equity firm’s success. The problem is that this valuable information is often confined to personal hard drives, email archives, unsanctioned productivity apps, and in employees’ own heads.

The ability to fully access institutional knowledge drastically impacts the performance and success of firms: In 2019, Boston Consulting Group analysts calculated that a large pension or sovereign wealth fund could see a net impact of $100 million annually just from managing its knowledge more effectively. Firm leaders are taking note: A recent PwC report revealed that more than half of surveyed executives say they’re updating processes to reduce reliance on employee-specific institutional knowledge.

Learn more about what institutional knowledge is, why it’s important to compile and share within your firm, and how to use it to your advantage.

Understanding PE institutional knowledge

Institutional knowledge refers to the collective information known by all members of a team. This knowledge can be stored in the minds of individual dealmakers and their associates, or it can be collated and documented so others can access it freely.

Because PE firms don’t offer a typical retail product or service-sales business, the institutional knowledge for these firms covers a unique range of topics:

• Relationships and their context — Where did contacts come from? Who sourced those relationships? How warm are they? How recent were the firm’s last touches? What was established in those conversations?
• Previous transactions and their details — How did other deals originate? What was their outcome? Did the efficiency of deal teams contribute to, or inhibit, deal velocity?
• Workflow best practices — What tricks of the trade have other teammates learned to streamline their tasks and get more done? What timesaving shortcuts did they adopt?

Why PE firms need to create reliable, accessible institutional knowledge

Scattered, siloed, and unreliable information causes operational problems: Team members interrupt one another’s workflows to ask questions and redo research, and may unintentionally step on toes while trying find the information they need. By properly capturing and sharing institutional knowledge, firms can avoid these challenges and embrace new opportunities to increase efficiency and productivity.

Tighten inefficiencies

Standardized knowledge-sharing lets firms tighten their operations — a critical advantage. Ben Cole, Investment Manager at FPE Capital, tells us that before his team began collating and documenting the many data points scattered about the firm, processes were clunky, time-consuming, and unproductive. When a deal originator would meet with a qualified private company, the firm left it to the deal originator’s own diligence to push that deal forward.

“We’d follow up in 6 months’ time based on whether or not we remembered [to reach out],” Cole recalled.

Today, FPE successfully manages the group’s institutional knowledge via Intapp DealCloud, and relies on established, proactive, and reliable business development processes.

“Through the [DealCloud] platform, we have our Monday morning meeting deal pipeline view,” Cole explained. “[The software] allocates actions to each person within the investment team based on what’s in their pipeline and what they need to do.”

Improve security

Standardizing, sharing, and managing firm information minimizes the risk of hacks, leaks, and data theft. However, without the proper technology and processes in place, dealmakers are forced to rely on smaller point products to manage institutional knowledge. These products only serve immediate and individual needs at the expense of the collective good and can cause serious security problems.

Drawbacks of using point products include:

• Decentralized control — Letting teams manage their own information creates data silos, as groups may store data in different formats and locations. This instantly opens each data set to vulnerabilities via misconfiguration or human error.
• Poor interoperability — If one team member uses spreadsheets to store information, and another member uses a generic CRM, neither can easily access the other’s data. In cases like this, dealmakers will copy and send data via email or text, share screenshots, or convert data sets into word-processing documents. These methods can expose data to malicious or negligent third parties.
• Noncompliance — Regulators have recently cracked down on lax data privacy and protection practices. The more individuals managing their own systems, the more your firm risks violating rules and facing financial penalties.

Thankfully, implementing a cloud-based information management tool can help your firm organize and manage data collectively, allowing you to mitigate — and, in many cases, eliminate — these concerns. For example, information management technology codifies inputs so that the data remains free from corrupt, incomplete, and duplicate records that inevitably sneak into data sets when multiple users enter information.

Prioritizing institutional knowledge also centralizes control. You can strategically grant permission to appropriate team members so they can access only relevant data. The interoperability of a modern system and related processes eliminate previously lax data-sharing practices, reducing the risk of a regulatory body’s audit and penalties.

Enhance collaboration among PE teams

Cole recalls how difficult it was when every FPE team member managed their own deal, relationship, and workflow information: “We were using a legacy CRM and a whole bunch of spreadsheets that sat alongside that system. Most information was shared internally via face-to-face meetings.”

At the time, Cole’s team was extremely small, growing from 6 to 10 members. The firm’s disjointed systems and processes worked for them, but only to a point.

“It was okay if one of the partners was meeting an intermediary [whom they’d] met plenty of times before,” Cole explained. “But let’s say somebody else from our firm needed to interact with that person. There would be no way to quickly take stock of when previous interactions had taken place, what [had been] going on in those interactions, or what projects had been worked on together.”

Since they began collecting and standardizing institutional knowledge, FPE dealmakers are now informed of all context ahead of every internal chat, email, or text exchange. By accessing this information, team members can collaborate and work smarter, not harder.

Boost deal efficiency and success

Poorly documented information obscures visibility: Without a crystal-clear view into the firm’s moving parts, leaders can’t successfully navigate day-to-day activities, resulting in deals coming to a halt or falling through.

“[We had] a general difficulty understanding what was going on across the firm as well as being able to aggregate data across the firm and draw out insight from that data,” said Cole. He and his team struggled to answer key decision-making questions, such as:

• How many deals has the firm taken seriously in the previous year?
• Which subsectors yielded the most deals for the firm in a particular year?
• Which geographies should the firm spend more time on, based on the number of deal opportunities the firm has observed or taken?

Institutional knowledge provides professionals with the transparency they need to answer these questions so they can source better deals, engage more effective intermediaries and service providers, and allocate their own talent to transact more efficiently. In Cole’s case, his team tripled the number of qualified deals in its pipeline after putting structure and process around its pipeline information management.

How PE firms build and capture institutional knowledge

To capture and leverage all the valuable information currently locked in your dealmakers’ heads, you’ll need to implement the best suite of tools and standardize your processes.

Create a clear change management plan

People can be hesitant to change, so your firm must provide a clear plan that outlines when, how, and why it’s updating its information management tools and processes.

To ensure your new tools and processes meet your firm’s needs, audit existing tools and create a simple form for your team members to complete to help you better understand their challenges. The form should include these types of questions:

• What tools do you currently use to manage your contacts, relationships with those contacts, deal pipeline, and task list?
• How do these tools help you and your external contacts, including service providers, intermediaries, operations managers, and limited partners (LP)?
• How do these tools fall short, slow you down, or create friction in your day-to-day work?
• What does your daily and weekly routine look like? When and where do you complete tasks?

As you collect responses, be sure to note the following point products:

• Email archive and conversation storage
• Transaction (workflow) information collection and/or management and recall
• Data analysis
• Opportunity tracking tools
• Communications methods, like messaging apps

Take note the intensity of sentiment for each response. For example, some dealmakers may be frustrated with their pieced-together tech stack and crave more streamlined workflows, while others may be more afraid of change than sticking with their scattered sources. One respondent may complain about the length of time it takes to find the most recent conversation with a contact; another may reveal that it’s embarrassing when an LP points out that the portfolio company (portco) performance notes are inaccurate or outdated.

Based on the audit, document exactly which tools and processes need to change. Then, define success: What indications will determine whether your change is effective? The more you and your fellow leaders learn about what your teams need, the better you can determine requirements for your new system.

Next, consider and address any barriers before implementing your new information management system. For example, leaders may want to research knowledge-sharing systems that offer mobile apps to ensure remote workers can successfully input data while away from the office or making deals on the go.

Finally, celebrate incremental wins throughout the implementation process. Reveal your firm’s progress toward your goals and measure improvement. Share achievements, publicize milestones, and acknowledge those utilizing your new processes and tools.

Building and leveraging your team’s institutional knowledge is a marathon, not a sprint. Take time to fully understand your firm’s wants and needs around instituting collective knowledge.

Improve productivity with DealCloud

Once you’ve collected and documented input around current tools, existing challenges, and desired changes, your firm can begin searching for a tool to successfully democratize aggregated data and improve productivity.

Unlike generic CRMs, DealCloud is built for the sole purpose of managing private capital markets dealmakers’ information. The platform helps firms achieve a number of strength-building advantages:

• Extracting information from dealmakers’ activities — DealCloud collects activity data and automatically and cleanly compiles it. This saves team members from the tedious task of manually entering the data themselves.
• Combining all team members’ experience — DealCloud collates your team members’ aggregate information to produce actionable conclusions. The platform’s algorithm uses data from your team’s collective outreach activities to score and rank every relationship by strength and profitability. It also offers visual overviews of who’s working on which deals and the stages of those transactions, helping your firms allocate talent accordingly.
• Organizing everyone’s data with customizable taxonomies — DealCloud uses classification schemes and de-duplication rules to maintain data integrity automatically so you don’t have to manually scrub your data. It removes redundancies and flags mismatches (e.g., when team members report conflicting deal stages).
• Securing key data — Proper knowledge management helps your firm avoid data mishandling and malicious intruders. DealCloud’s information security certifications convey to general partners and their stakeholders that their data is safe and sound.
• Providing a variety of views — Analyzing data in diverse, interactive ways can help leaders make informed decisions. Rather than relying on static, one-dimensional reports, leaders can use DealCloud’s customizable dashboards to review every insight they need, when and how they need it.
• Integrating with other information management tools — DealCloud doesn’t force users to stop using point products they’re accustomed to. Instead, the platform’s API works seamlessly with storage tools like SmartRoom and market intelligence sources like Preqin and PrivCo.

Revamp your processes

New technology requires new operating procedures. The good news is that these modernized processes will contribute to successful information management and usage.

Start improving your processes by configuring your new system. Review the results of your technology audit as well as the complaints and frustrations of your dealmaking team. Next, explore every feature your new CRM offers, and decide which ones will help you address identified issues and meet your firm’s goals. After that, you’re ready to start customizing your new system.

Create user groups and set permissions for individualized accessibility to ensure the right people can input, edit, and recall the information they need on demand. You can grant blanket permissions for partners and place feature-level limitations on others team members. You can also create customized permissions, such as letting one user temporarily work on behalf of another.

Set alerts to notify the right people of key events, such as when team members complete tasks or deals move to the final stages. These activity alerts for dealmakers can be trigger-based (e.g., when tasks get assigned to you or when they progress to the next phase). Notifications can also be time-based. For example, when a certain number of days have elapsed since your team connected with a contact, the software can alert an associate to reach out and keep the relationship warm.

Finally, automate tasks — such as generating and sending customized, real-time, data-populated reports — to save your professionals time and effort. Capturing and distributing your institutional knowledge via a single system will help your team discover and leverage information quicker than ever before.

How PE firms effectively use institutional knowledge

Make the most of your internal knowledge bank by implementing ongoing internal training, supporting team members, and using your new systems and processes to boost external relationships. Although this requires time and effort, the results are worth it.

“Years of a different kind of experience are often needed to create lasting change,” write the change management experts at Kotter.

Encouraging individuals to embrace change and relinquish their siloed methods can be challenging —driven dealmakers often do what’s best in the short term, and that rarely includes sharing their knowledge with others.

Nevertheless, building your firm’s long-term, institutional knowledge is worth prioritizing. Bolster the change by adding information about information management tools and processes to training manuals and new-hire curriculum. As more people learn about these practices and technologies, your firm will observe an increase in those who want to draw on — and contribute to — your knowledge bank.

To further encourage firmwide adoption, encourage users to hold one another accountable and respectfully point out when people fail to use the new system. Ask about usage and adoption during regular team meetings, and incorporate usage into performance metrics. Some firms even hold friendly in-office competitions to ensure everyone properly leverages and adds to the firm’s institutional knowledge.

By deploying institutional knowledge wisely, firms can greatly enhance productivity. For example, if an investment banker struggles to remember an LP’s deal history, they can create a quick PDF tear sheet from your firm’s database and send it over within seconds. Be sure to advertise your institutional knowledge to potential LPs, intermediaries, and acquisition targets so they know that all of your associates are on the same page.

How PE firms turn institutional knowledge from stumbling block to stepping stone

The way in which your firm harnesses its data determines its level of success. As Scottish historian and critic Thomas Carlyle once said: “The block of granite which was an obstacle in the pathway of the weak becomes a stepping stone in the pathway of the strong.”

When a PE firm properly builds, organizes, and leverages a bank of institutional knowledge, it can reroute previously underused resources to find and execute more profitable deals. Capture and use your shared knowledge to instantly get ahead of the competition. Stand out from the rest by relying on the foundation laid by every member of your team, past and present.

Request a demo to learn how Intapp DealCloud can support your PE firm’s institutional knowledge.