According to the 2022 Private Funds CFO Insights Survey, only about half of general partners (GPs) within the private equity sector have adopted private equity tools like cloud technology. Just 4% of GPs use machine learning tools, and a mere 3% have implemented AI or process automation.
Venture capitalists (VCs) have also found it difficult to adopt adequate technology because many of the factors that contribute to VC decision-making are regarded as human- or character-based and therefore not easily quantifiable. Factors such as market shifts, a founder’s charisma or leadership skills, and even gut instincts all influence a VC’s decision to invest.
Although technology can’t make key investment decisions, the right tools can empower leaders to steer their firms toward the best opportunities. Learn more about five private equity tools that GPs and VCs can adopt to gain a competitive edge.
DealCloud: Relationship Management for Private Equity
DealCloud is a pipeline and relationship management system designed specifically for capital markets professionals. With DealCloud, VCs and GPs can manage and gain key insights into private equity relationships, empowering dealmakers to make the most educated decisions at every stage of the fundraising and transaction process.
Venture capital and private equity businesses depends on a low volume of high-stakes relationships, rather than the high volume of low-stakes transactions typical in other industries. Unfortunately, generic CRMs often treat professional relationships as linear and transactional, and fail to account for the complex relationships involved in private equity dealmaking. DealCloud, on the other hand, recognizes that private equity professionals are in a nonlinear web that requires better relationship management than what generic, industry-agnostic systems provide.
Source: Britta Klagge and Carsten Peter, Spatial Research and Planning, Academic Advisory Council
DealCloud helps private equity teams capture and share their intellectual capital. The software automates dealmaker tasks and collects information from these activities so that every team member can build upon their colleagues’ and service providers’ relationships.
Imagine, for example, that your firm partners with an investment banker to help source deals. As you interact with that intermediary, DealCloud automatically collects metadata from the associated workflows and conversations. The software collates and arranges details such as the volume, recency, and types of engagements to formulate a score for that relationship. At any time, your firm’s leaders can view each intermediary’s relationship score and determine the best course of action:
- Nurturing aging or neglected relationships
- Assigning stronger connections to trickier negotiations or high-stakes exits
- Allocating different talent to cover certain intermediaries’ deals based on the outcomes of their previous buyouts
Having purpose-built CRM will help your firm better understand your client relationships and ensure that important contacts get the attention they need.
Preqin: Informed Fundraising and Investor Pipeline Management
Preqin offers the world’s largest real-time database of investors and fundraising activity for private equity firms and VCs. Preqin users can fill, nurture, and refill their investor pipelines with more-qualified limited partners (LPs), and apply more time and energy to sourcing and executing the best deals on their investors’ behalf.
Every private equity firm wants to approach capital calls with the most relevant, real-time intelligence; but without a data source like Preqin, your firm risks going on virtual roadshows without knowing enough about the market and investors. Preqin provides the following types of insights:
- Relationships between your firm and other fund managers
- Performance of previous portfolios
- Returns on past investments within an asset class
- Current allocation breakdown (and whether they’re under- or over-allocated)
- Key LP team members by job role, geography, and asset class
- Preferred method of contact for investors
By leveraging Preqin databases and research, you can narrow the firms you want to target and successfully pitch to institutional and accredited investors, including those who meet criteria:
- Recent investments in a particular asset class
- Active mandates that align with your investment thesis
- Past and current commitments to private equity funds like your own
As a result of all this intelligence, Preqin users raise twice the capital of other private equity fundraising teams.
PitchBook: Data-Driven Market and Target Insights
PitchBook provides a living database of 3.3 million companies that informs, equips, and empowers VC and private equity deal-sourcing professionals. Fund managers, analysts, and researchers can avoid the time-consuming task of manually searching for private company data, and instead automate this task using PitchBook.
Fund managers need a continual supply of new investment opportunities to replace both successful exits as well as deals that, for a variety of reasons, don’t close. Without a private equity tool like PitchBook, business development professionals must rely on word of mouth and the morning headlines to uncover new opportunities. And, when they do find and approach new targets or startups, they often find the private company is either misaligned with their own goals or unwilling to sell.
Worst of all, potential deals that pass the first few vetting phases often wither during the due diligence or valuation stages when proprietary data emerges. This greatly slows the deal flow and costs the firm precious time, energy, and resources.
With PitchBook, GPs don’t need to piece together intelligence from multiple sources to originate and execute deals. Instead, they can use a single tool to determine critical criteria, such as:
- Allocation of funds by other investors, and how those funds’ portfolio companies (portcos) are performing
- Private company financing metrics, cap table, fundraising series and their terms, earnings before interest, taxes, depreciation, and amortization (EBITDA), cash flow, and deal multiples
- Targets’ growth stage, industry, and geographical location(s)
- Strategies for pitching the ideal exit based on comparable companies’ successful exits
SmartRoom: End-to-End Deal Lifecycle Management
Executing transactions is arguably the most important part of a fund manager’s role. Unfortunately, due to the poor reception of first-generation data room solutions, many fund managers continue to use generic virtual data rooms (VDRs) and multiple data platforms. These older tools and methods slow down the transaction process; fund managers can’t source and close as many acquisitions as they would like.
Thankfully, private equity technology is finally catching up to dealmakers’ needs. SmartRoom provides secure virtual data rooms with LP access and remote detonation. It facilitates deal execution by providing secure, next-generation file sharing, storage, and collaboration. It also offers automatic report creation and distribution via email for scheduled routine investor briefings.
SmartRoom provides users with powerful features, including:
- A portal for institutional investors to self-help, follow the deal execution process, and communicate with intermediaries
- A custom app builder that lets users create their own dashboards, menus, and unique and easier processes
- Intuitive automatic file uploading and storage from disjointed sources like emails, desktops, and other software tools
FIS Private Capital Suite: Accounting and Automation
Dealmaking isn’t a high-volume business, and many private equity firms continue using spreadsheets to manage their finances. However, this method often proves inefficient, as recorded transactions accumulate throughout the accounting cycle before they’re ready for analysis. This means leaders must wait for a given accounting period to close before they can retrospectively draw insights and make operational changes both to portcos and their own business. This delay creates a frustrating decision-making lag.
FIS Private Capital Suite (formerly Investran), a private equity fund accounting tool, helps back-office teams manage the firm’s own finances by unifying fragmented data. The tool streamlines and automates the tedious work of fund accounting and reporting for fund managers and VCs.
FIS Private Capital Suite works by centralizing the firm’s ever-changing information into a single platform where the front-, middle-, and back-office processes can run in harmony without manual human input. Users — depending on their customized permissions and access — can view and interact with the fund’s financial information as it evolves. And, if they leverage the tool’s mobile app, they can do it all on the go.
Source: FIS Private Capital Suite
FIS Private Capital Suite helps you reclaim your time for better portfolio management and smarter dealmaking.
How to Choose Private Equity Tools for Your Tech Stack
The best combination of private equity tools for your business will always be based on your firm’s unique strengths and needs. You’ll need to consider your firm’s size — including assets under management (AUM) and employee count — and your preferred asset classes.
You’ll also want to factor in your firm leaders’ goals. Some partners, for example, want to increase deal count or deal size, while others are hungry to break into new sectors or investment types. Other fund managers are curious and need technology to help them experiment, learn, and pioneer new processes. Figure out exactly what your firm wants to achieve, then research which tools best meet your goals.
To begin building the perfect solution, schedule a call with a DealCloud representative.