Three Factors Determine What Technology To Choose For Private Equity

If you’re in any aspect of private equity, you understand that technology is a critical component of your deal team’s operations. But how should PE firms decide which technology to select to underpin their deal management processes? This blog post helps private equity firms to bridge the gap by describing the three most important factors to consider, as well as their implications. The three factors are: 

1. Your private equity firm’s operational model
2. Your private equity firm’s deal types
3. Your private equity firm’s cross-functional intersections, if any
   
   

First, let’s talk about the operational model. When looking at private equity operations, there are usually two models that we see. One is a “partner-heavy” model, where partners come to the table with extensive pre-existing networks. These personal relationships serve as the primary source of deal flow. If this is your PE shop’s operational model, the technology you choose should support the consistent nurture and prioritization of their relationships, contacts, and networks.

Alternatively, many private equity firms use a model where associates drive the deal flow. In this case, the associates do the “heavy lifting” of research, outbound calls, and other prospecting activities in order to target potential deals. In the “associate-heavy” case, the technology you choose needs to provide detailed metrics to monitor the status of the pipeline, as well as offer activity tracking and real-time notifications to keep all associates working at maximum effectiveness.

The second factor to discuss is the deal types that are involved in your private equity firm. This includes looking at the strategy your fund has, the different cycle times that exist, and how generalists and specialists are engaged. For example, if you have a broad availability of opportunities in your targeted deal type, you will need technology that offers extensive data collection capabilities. If you rely on specialists at certain points in the process, you will require rigorous workflow features. Or, depending on the type of diligence you include – financial, commercial, geographic, demographic, etc. – you will need to be able to collect, assimilate, and synthesize information from a wide variety of sources. You’ll need to answer all of these questions in order to choose the technology that best fits your firm’s overarching strategy.

Finally, let’s examine cross-functional intersections – likely one of the most under-considered factors within private equity shops. What we mean by “cross-functional intersections” is the places where different functions could share information for maximum overall productivity, but usually don’t. For example, if LPs are able to provide introductions for new investment opportunities, is that information being shared across the investor relations/capital raising teams and deal management teams? If not, many opportunities are getting missed…not a good scenario in an environment where a plethora of well-funded private equity shops are looking to competing to source good deals.  The right technology can dynamically support this type of information sharing and collaboration.