February 15, 2023
I used to work on the investment side of a private equity manager and I remember a situation when one of the partners told a group of junior and mid-level professionals that they should spend at least half their time on sourcing new deals.
I used to work on the investment side of a private equity manager and I remember a situation when one of the partners told a group of junior and mid-level professionals that they should spend at least half their time on sourcing new deals. The memory stuck with me and I tried to make that one of the key rules for how to allocate my time. Having a rule like this is good practice, in order to keep on replenishing the sourcing funnel with good leads you need to ensure that you systematically carve out enough time every day, every week, to keep chipping away at the task. It’s a bit like going to the gym, the only way to see results is to do it regularly, over long periods of time.
Private equity as an industry has gotten many orders of magnitude more competitive since I first came into it some 10 years ago. This is driven by a number of factors not worth dwelling on here (but if you’re interested you might download the Bain Private Equity Report to read more about the state of the industry). The stiff competition has led many managers to conclude that to truly differentiate themselves from all the other capital providers out there (not only private equity), they will need to rely on digitalisation to help them find that edge in the coming years.
The strategies that different managers have employed on the topic of digitalisation are unique to them and not fully known, but the concept of in-house developed software which is proprietary and difficult to replicate seems to be a central point for a majority of them that I have seen or heard about. Another common theme is to focus most of the time and money in search of the Holy Grail – that one piece of software based on AI that will engineer away any human error and spit out perfect investment leads and recommendations at the click of a button. Let’s call this the hard problem of private equity digitalisation. Advances to solve the hard problem are being made daily but it will still take many, many years to solve – if ever.
My view is that the hard problem has partly obscured the need for digitalisation of all the other aspects of private equity managers’ daily operations. Thinking back to my many years in private equity, sadly I can’t say that I lived up to the rule of spending half my time on sourcing, as my boss had instructed us to do. Between all the internal meetings, portfolio company work (where at times I had as many as three), live M&A processes, recruiting, and so on, I just never had enough waking hours to please everything and everyone. And unfortunately, sourcing is the least urgent of all these activities and thus the one that has to give way to the others. It also happens to be the most important in the long term. It is therefore quite understandable that so much is being invested into solving the hard problem (which is clearly aimed at delivering super-charged sourcing and due diligence), but it comes at the expense of “fixing the basics”.
Giving back time to busy professionals is the primary reason that Dealstack exists. We want to enable people to focus on tasks that use their intellect and experience, not the manual repetitive things well all hate to do but learn to live with. I’m talking about all the outdated modes of working - in word and excel and powerpoint - that slow us down and steal that most precious of resources – time. And by the way, don’t get me started on all the manual errors that creep in when working with these tools and that I have spent countless hours reconciling in the middle of the night.
This is where I would like to make a predicition. I believe that in some years from now, making a new private equity investment will not be that much more complicated than buying shares on a stock exchange. This will give a lot of time back to private equity investment professionals, lawyers, accountants and, not least, management – which will mean they can focus on delivering alpha for their investors. I am almost certain my old boss will be one of our first customers when we launch.
Giving back time to busy Private Equity professionals is the primary reason that DealStack exists.