Part I: Front office solutions map for GPs

Part II: Middle office solutions map for LPs & GPs

Part III: Back office solutions map for GPs

Improving Front Office Operations

Many GPs want to improve the efficiency and effectiveness of their front office operations and maintain good oversight of their pipeline and processes. Yet, each firm’s scope and key requirements are different, and the front office space is complex. There is a lot more to front office than CRM, so understanding the different approaches adopted by software and data providers in this space can help fund managers take a step back and see how all these solutions are designed to fit into the private equity workflow, and more specifically how it might fit into theirs.

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Diving into the Map

CRM:

Customer relationship management tools help firms manage their IR / deal pipelines. CRM tools built specifically for private equity and venture capital offer native data integrations and provide actionable intelligence to help investors track and close deals effectively. Some providers only specialize in front office and are also known as ‘point solutions’, while others offer a full suite of solutions across the various functions of a private equity firm, including middle and back office tools. Private equity focused CRM vendors understand PE workflows and have customized their products to work specifically for those use cases, such as tracking conflict of interest at every stage of every deal, managing relationships with intermediaries, real-time and single source of truth updates on intelligence on pipelines for effective business development teams etc. Adopting a PE specialized CRM vs a generic tool makes a big difference, whether it has been built from the ground up or leverages Salesforce or Microsoft Dynamics as the underlying platform.

Relationship Intelligence:

Relationship intelligence is a growing subcategory of CRM, with some vendors aiming to entirely replace the traditional CRM while others sit alongside and integrate with existing platforms. Warm introductions still carry a large weight in private equity due to the large scale of operations and capital in the industry. Relationship intelligence tools allow PE & VC firms to leverage their entire team’s extended networks to find the strongest introduction paths to target companies. RI tools are extremely useful for both small & large firms alike, especially when combined with some of the cutting edge data and intelligence tools which are generating unique investment prospecting opportunities.

Research as a Service / AI Powered / Alt Data:

RaaS is one of the most exciting fields in private equity deal-sourcing and we have seen a growing number of enquiries from GPs looking to adopt new tools in recent months. RaaS solutions use AI, namely machine learning (ML) and natural language processing (NLP) to create an alternative data source with personalized recommendation algorithms for GPs to identify potential investment opportunities in their sweet spot before anyone else– before the target even reaches the sweet spot. In addition, alternative data sources are using innovative techniques to power unique insights into tracked companies and opportunities to identify new targets.

Company Data:

Accessing private company data is nothing like accessing public data. Yet, there are many PE & VC specialized data vendors that make it almost as easy as its public counterpart. Over the past few years, data vendors have provided increasingly granular private company information: detailed financials and financing, employee and board information, non-financial metrics… These firms mostly combine teams of human researchers with data-scraping to maintain data sources effectively. The increasing volume of actionable data is improving valuation and due diligence processes. We are starting to see cases where the more traditional data collection approach is being supplemented with AI-powered tools to create enhanced sources of intelligence - for example, prediction models to provide estimates for financials in the absence of hard data.

Firms & Funds Data:

Firms & funds data can be used by GPs as fundraising and deal sourcing intelligence. For fundraising, this data can be used in marketing materials– benchmarking last fund performance, market sizing etc., in addition to allowing GPs see other funds that are raising capital to better understand the competitive space. When combined with LP data, firms & funds data can show LPs that have recently invested in similar funds. For the deals team, firm & fund data can be a source of potential targets for buying and selling. Knowing the vintage of a fund can give a proxy on pressure to sell. Knowing how much dry powder a fund has in its later years can give a proxy on pressure to buy.

LP Data:

The LP world is opaque. One of the hardest parts of fundraising for emerging managers has been finding relevant LPs. With the emergence of LP data providers, identifying potential LPs has become much easier, allowing GPs to focus only on viable prospects and fundraise more efficiently.

RMS:

Research management systems are central research repositories that store all documents in one place, in an easily navigable format. Research management systems can be customized to each firm’s processes to automate document ingestion and categorization, and is an extremely useful tool for large, complex organizations.

Fund Due Diligence Analytics:

Diligence tools aim to improve the fundraising process by centralizing the 2-sided investor relations and document sharing process. This is achieved by providing a digital platform for GPs to upload their track record and built-in analysis tools for LPs. Fund due diligence analytics tools also help GPs answer DDQs more effectively, reducing the quantitative fund & manager due diligence time for LPs.

Deal Due Diligence Analytics:

We see two main approaches here, the first is the productization of the kinds of due diligence engines which have been built by leading PE and VC firms to assess opportunities. This algorithmic approach leverages data from other companies and investments to benefit the user. The second main approach has been the emergence of tools which institutionalize a firm’s process, past experience and best practices to assist deals teams assessing the viability of new investments.

Marketplaces:

Marketplaces aim to connect buy- & sell-side market participants: LPs and GPs for fundraising, GPs and companies for deal sourcing. For fundraising, institutional investors (LPs), fund managers (GPs), advisors, administrators, fund of funds and other investment professionals interact on one platform with due diligence tools. In addition, a number of platforms have emerged to facilitate investment from smaller investors via innovative fund structures and distribution channels. For deal sourcing, GPs can identify relevant opportunities that match their investment criteria, while companies can access data to research buyers, advisors and portfolio companies.

Help?!

Of course, this is a simplified version of the vastly complex front office space. There are many other functionalities offered by vendors, such as virtual data rooms and fund onboarding tools which we will cover in other maps. With hundreds of competing, complementary and overlapping products to consider, private equity software procurement can be a challenge. We're here to help.

We designed our free procurement service to make things easier, more comprehensive and more efficient for private equity and venture capital investors. Here’s how we can help:

Identifying your needs and key purchasing criteria to qualify vendors
Educating you on all the different specialized solutions in the space
A single point of contact to all vendors while avoiding constant sales calls
Expedited procurement process
Project management of the entire process if requested
Demo assistance and pricing normalization
Best-practice procurement report for shareholders