I was sitting with a Silicon Valley CEO a few months ago (with 30 patents and several successful exits behind him) asking about the keys to success in the next ten years. He, in turn, quoted a Gartner trend analysis from 2013 to me: today, every company is also a technology company – noting that was true a decade ago, and has only accelerated in the post-Covid era.
Indeed, as nearly every vertical and every facet of business operations have been disrupted over the past three years, true digital transformation is (finally) seeping into every element and department of the modern firm.
The need to continuously monitor and modernize portfolio operations is perhaps most pronounced for private equity firms when it comes to their technology and market data stacks. In a business where sourcing data, consuming those sources to identify trends, and moving with agility is your competitive advantage, the right tech and data stacks can be make-it-or-break-it for your long term-growth.
Of course, investment trends in data and tech stacks underscore that need, with TradeAlgo estimating a new record $37B of spending in 2022 in market data alone. A trend that does not seem to be slowing, despite rising inflation and a tightening fiscal policy.
However, amid macroeconomic headwinds, the right tech-enabled data solutions become even more important for PE firms looking to maintain competitive advantages throughout the deal lifecycle.
We’ve partnered with our associates at Grata, a leading private company intelligence engine, to put together our eBook: Optimizing the Deal Lifecycle: A Roadmap for Building a Technology-Driven Private Equity Firm.
This exclusive report dives into how PE leadership can get their arms around a modern tech stack, what needs to be included, and how to optimize that spending strategy. Here’s an excerpt on the drivers behind rising prices and a fragmenting PE technology ecosystem, and you can download the entire report (for free) now!
One Tool to Rule them All
“The technology ecosystem is very fragmented. A few years ago, folks were really sold on the concept that if you just buy Salesforce, it’ll be a panacea. There’s been a tension between ‘Can we have one tool to rule them all or do we try to patch together the best of breed solutions for each stage of this?’ I think that remains an open question.” - Josh Webman, Concertiv
First, an ever-growing and fragmented technology ecosystem makes it challenging for PE firms to ensure they achieve optimal ROI for their technology spend. Here are a few examples of the tech inputs many Private Equity CFOs and COO’s manage on a regular basis:
- There are general market research platforms, such as Pitchbook, Refinitiv, FactSet, and S&P CapitalIQ, which provide private and public market financial and deal data for the M&A ecosystem.
- Networks, such as GLG and AlphaSights, offer their expertise to help deal professionals get up to speed on the markets quickly.
- Then, when it comes to deal sourcing, software companies like Grata offer an index of companies, and information services like SourceScrub offer databases of companies sourced from conference lists.
- Much of the data PE firms extract from these solutions often ends up in their CRM, whether it is a deal-specific CRM like DealCloud or a general-purpose CRM like Salesforce. While these solutions allow PE firms to centralize their data, they do not offer all the capabilities firms need to streamline the end-to-end deal lifecycle.
Firms also tend to have a status quo bias toward solutions that have been widely adopted throughout the industry. However, if firms do not actively try to keep up with new innovations and maximize ROI, they may not be able to stay competitive and will get left behind by competitors who are prioritizing data and technology transformation.
The Rising Cost of Technology and Data Services
PE firms face increased costs for data services, which has elevated data spend per employee. While it is important to negotiate with suppliers and keep costs down, firms must shift toward viewing spend as a driver of returns.
PE firms currently spend an average of $34,000/year per professional on technology-enabled research and data – according to Concertiv benchmarks and relationships across more than 700 vendors covering more than 900 products.
Dealmakers who implement a data and technology-driven deal sourcing process engage in more annual transactions compared to their peers and have a higher average fund return.
Moreover, when PE firms right-size and customize their tech stack to better harness market data, they are more equipped to optimize processes throughout the identification, outreach, nurture, and due diligence stages. Consequently, firms expand their investable universe and generate more ROI for their technology spend.
Future-Proofing Your Competitive Advantage
A carefully sourced data and tech stack has the potential to optimize every aspect of the deal framework, creating efficiency, saving time, and maximizing deal ROI.
Download the full guide, including two more barriers to an effective tech stack strategy, Optimizing the Deal Lifecycle: A Roadmap for Building a Technology-Driven Private Equity Firm below.