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Deal Management Software for Private Equity Firms

Software private equity firms
Software should help your firm streamline processes and automate essential tasks throughout the deal lifecycle. Private equity firms face unique challenges that can be mitigated by having the proper purpose-built deal management software.

Software should help your firm streamline processes and simplify or automate essential tasks throughout the deal lifecycle. Due to their nature, private equity and venture capital firms face unique challenges that can be mitigated by having the proper purpose-built deal management software. 

The systems, processes, and tools that you have in place can be a source of competitive advantage that can mark the difference between closing a lucrative deal or not. With the right software, you can better organize your firm’s workflow and close more business.  

Although investing in generic CRM software built for sales teams might seem appealing, these solutions follow a workflow focused on converting sales opportunities, ignoring the unique intricacies of investing in private markets. 

Here is our take on the value that deal management software brings to private equity firms.

Key Needs of Private Equity Firms

Harnessing the power of technology can help your firm manage its most pressing needs, including organizing deal pipelines, supporting relationships, storing deal information, automating workflows, and keeping track of metrics in real-time.  

Let’s dive in to see how a firm can benefit from implementing deal management software through the various deal stages of the private equity pipeline.  

Deal Sourcing

Sourcing deals is one of the most important and time-consuming functions performed by private equity firms. Sourcing the right opportunities at the right time is crucial to maintaining a healthy deal flow.  

There are two main ways of sourcing deals: inbound and outbound.

Inbound deals are those that come to you or your firm from other sources. These might be via your network or by regular referrers who know the type of company that may be a good match for your firm. In the private markets, your network is the prime source of quality deal flow; thus, you need to maximize your network to its fullest potential. 

On the other hand, outbound sourcing describes the activities you undertake to identify and pursue possible companies to acquire. For example, by proactively reaching out to specific companies you might be interested in starting conversations with. At some point, you will need to leverage your network to develop an introduction path to the CEO or other executives from the target company. Regardless, having a solid network is essential to sourcing the best deals.

Both inbound and outbound sourcing have something in common – the volumes of data you need to manage to stay on top of the relationships. In other words, you need to be able to engage with the right people at the right time. 

To efficiently track the progress of each deal through the different stages, from a new lead to a closed deal, the platform that you choose should have robust forecasting and reporting functionality—tracking every touchpoint you have with a prospect, including emails, meetings,  and phone calls.  For firms with a more robust marketing approach, you might also extend that to event and webinar attendance, or other signals that might help track engagement to close deals.

Deal Management Software

Due Diligence

Once a deal has been sourced, conducting a thorough due diligence process is critical to identify, assess, and minimize risks before moving forward with a potential acquisition. Whether acquiring a small business or an enterprise, your firm needs to evaluate the company thoroughly.

A thorough confirmatory due diligence process will involve evaluating the legal, operational, IT, and financial areas of a company to validate the assumptions supporting your firm’s investment thesis. Naturally, one of the challenges during this process is unearthing all the information you need to make an informed data-driven decision. At this stage, you will most likely require the services of third-party professionals (accountants, lawyers, consultants) to perform specific analyses.

The right software platform can simplify due diligence workflow management by helping you find the best professional service providers from your network, organize and manage documents and streamline the process. Additionally, software with artificial intelligence (AI) can help save valuable time by automating tasks.  

Deal Pipeline Management

When you are in the process of juggling various current and potential future investment deals, you need to have an effective deal management system coupled with the right people and processes to ensure nothing falls through the cracks. There are no excuses for you not to be able to track deals effectively.

You don’t want to miss due dates or crucial touchpoints with a prospective company. The effectiveness of your deal management process can often be the difference between securing a deal and being caught in a competitive battle.

Portfolio Support

The era when private equity was only associated with financial engineering is long gone. Today, PE firms are much more involved in operational value creation. Once the acquisition occurs, it is in your firm’s best interest if the acquired company succeeds.

In essence, the goal of portfolio support is to create value by improving the company’s performance according to your firm’s investment thesis. 

There are various moving parts involved with portfolio support and management. These may include making key client introductions, recruiting C-level leadership, helping executives restructure internal and financial operations, and of course, tracking the progress of the company. All these projects need to be streamlined, documented, and managed efficiently.

To efficiently support portfolio companies, you need to leverage the power of your firm’s network. By making the right introductions to the right professionals at the right time, you can add immense value to your portfolio companies. An AI-driven deal management software solution can help you find the best contacts within your network to make those coveted introductions.

Fundraising

To acquire companies, your firm needs access to capital. Fundraising is the lifeblood of a private equity firm, unfortunately raising a fund involves multiple parties and moving parts, requiring efficient oversight to ensure information doesn’t fall through the cracks.

Deal management software can keep this information well organized and identify possible sources of capital. Like deal sourcing, the software can help you track your fundraising process, follow up with investors, and identify potential limited partners or facilitate introductions. Compared to the previous ways, which consisted of scouring contacts, conducting internet research, and using information repositories, the right software can search for you and create a shortlist while eliminating time-consuming manual tasks.

Reporting

Reporting on metrics is a common task for private equity firms. For example, generating quarterly progress reports for your fund’s limited partners. Additionally, you also need to prepare multiple internal reports for monitoring progress and forecasting your deal pipeline. 

Producing accurate reports can be an arduous task due to the amount of information you need to pull together from various sources. The right deal management software solution can automatically compile multiple data points, eliminating the need for manual entry, reducing errors, and improving accuracy.  

Software private equity firms

What to Look for in Deal Management Software

To keep up with all the aforementioned tasks, your private equity firm needs to find the right software that will streamline operations and keep your competitive edge.

Deal management software is much more than a generic CRM platform designed for the use case of tracking the sales process by moving deals down a sales pipeline. 

Here are a few of our thoughts on what you should look for when evaluating a prospective solution.  

  • The software that you choose should be built from the ground up to support the needs of a private equity firm. Software designed explicitly for PE has been created with this industry’s unique relationship management and project management needs. 
  • A focus on automation. You want to do as little manual data entry as possible. If data needs to go from one place to another, you want that to happen automatically, in real-time. For example, suppose you need a specific report on the first of every month. In that case, the software can compile the relevant data and automatically create the report.
  • AI can further streamline your team’s processes. A deal management system like 4Degrees uses proprietary algorithms to provide insights about your network, such as job changes, investments, noteworthy social media updates, and other relevant news. These insights can be strong signals of when you or a team member should reach out.
  • The software you choose should be reliable and intuitive. You should not be spending your valuable time trying to figure out how to use a tool. Additionally, the platform needs to seamlessly integrate with other tools you already use, such as your iOS or Android device and your Gmail or Outlook.  The product should live in the same “real estate” that you do!

The truth is private equity firms that don’t invest in technology solutions to streamline business challenges and automate functions will be at a competitive disadvantage.  Software isn’t just for startups – in today’s technology-enabled world, almost every firm needs more advanced tools to succeed. If you are ready to take the leap and invest in your firm’s success, feel free to request a demo of 4Degrees here

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