Why Every PE Firm Needs a Digital Platform
As a Private Equity Operations Director, you know that the only thing that stays the same in this industry is constant change. You and your team have to handle complex deals, keep an eye on portfolio performance, vendors, and regulatory authorities, and deal with numerous high-pressure activities that directly impact your firm's success.
Back in the day, all these activities required a lot of manual processes, and human labor was often stuck doing repetitive mundane tasks that did little to leverage creativity and problem-solving abilities. Portfolio companies and relevant stakeholders often operated in silos, with very little transparent communication, making it hard for fund managers to feel fully in control of what was going on. But the good news is that now we're moving away from those dark ages, thanks to the development of platforms for private equity. In this article, we'll show you why it's time to jump on board and develop your digital platform this year. Plus, we'll let you in on the easiest, risk-free, and fastest way to start investing in platforms for your portfolio.
But first things first: let's understand the shift that's taking place and the changing needs in private equity investments and operations.
Recognizing the value of digital tools in private equity
The private equity industry has undergone a notable shift in recent years, with firms recognizing the value of digital tools in transforming their operations. Like their counterparts in venture capital, private equity firms are leveraging digital platforms to simplify their processes, enhance collaboration, and increase efficiency across the board and their investment portfolios.
According to a report by Bain & Company entitled "Private Equity and the New Digital Normal," firms that successfully harness the power of technology are the ones that experience the most success. As such, it is imperative that private equity firms adapt to the digital revolution and take full advantage of the transformative potential of digital platforms.
Making a case for developing a private equity platform to improve portfolio performance
Every private equity firm has unique needs when it comes to managing its investments. A digital platform that is tailored specifically to meet the requirements of the firm can bring numerous benefits to the table. For example, the platform can provide a centralized dashboard that consolidates all vendor management tasks, from tracking performance metrics to ensuring compliance with regulatory requirements. It can also help you strengthen vendor relationships by providing a single point of contact for all vendor communications, reducing the risk of miscommunication or errors due to manual data entry.
Additionally, with a digital platform in place, your private equity firm can streamline its operations and gain valuable insights into the performance of the portfolio companies. Manual private equity portfolio monitoring can often feel like a daunting or impossible task, but the platform can alleviate much of the difficulties by provide real-time, comprehensive, centralized data on the financial health of each company in the portfolio, allowing your firm to make informed decisions about where to invest additional resources.
💡Want to see this automated vendor process in action? Book a free demo.
The power of integration: Beyond vendor management
Using a digital platform is more than just managing vendors. It means bringing together all the different tools and systems into one centralized place so everyone can work together. In the dynamic and complex world of private equity investing, having the ability to streamline communication and the sharing of information can mean the difference between being able to navigate turns and challenges skillfully, and always being behind the curve.
When different departments use different tools, you are prone to mistakes and it becomes hard to see how things are going. But with a central platform for the various processes that matter to your firm, everyone gets real-time information that's accurate. It's easier to see how things are going and make better decisions aligned with your firm's investment strategy that help you grow and make more money.
In addition, developing automated centralized data hubs makes it easier to spot trends and new ideas that you might have otherwise missed. Having this level of data visibility makes informed investment decisions a lot easier for you and the team, ensuring you work better and keep investors happy (the name of the game for private equity funds).
What should you consider when investing in your platform?
First and foremost, you need to identify the unique needs you'd like to cater to with your digital tools so you can choose the right platform company. Different platform companies offer different tools, and various processes will require various solutions, so you want to make sure you're very clear on the problems you want to solve, the areas you'd like to automate, and the right tools that empower you to achieve your goals. For many venture capital firms, the easiest platform to develop is the one that automates vendor relationships, as these tend to be unnecessarily time-consuming and easier to switch from analog methods to digital software solutions.
Remember that big promise we made at the beginning of this post to show you a risk-free way to start investing and reaping the rewards of the platform? Well, this is it! Investing in a streamlined vendor solution is a low-risk start to more effective portfolio management. It typically requires minimum investment but can yield high returns just within the first year of choosing the right vendor management solution.
What should you look for in a digital platform for your PE firm?
When researching and choosing a vendor platform provider, it's important to find one that has strong vendor management capabilities. While there are many factors to consider and some essential questions to ask before choosing a software solution, some of what you will need is the ability to easily track how well your vendors are performing, manage your contracts, and make sure you're in compliance with any regulations.
It's also important to find a platform that can grow and change with your business, so make sure it's scalable and customizable. Last but not least, it should be easy to use - you don't want your staff to get bogged down trying to figure out how it works. Keep these things in mind as you check out different platform providers to make sure you find one that's just right for your firm and you can also access our blog for more insights on how to find and choose the right software solution.
The way forward
Now that we agree on the importance of investing in platform, how does one get started? It's simple - first, you need to figure out the wants and needs of both your firm and portfolio companies. Take the time to identify the various aspects of your operations that you want to automate, streamline, and digitize, then evaluate potential platform providers.
It's important to understand that finding the right technology is not enough for success. We see this a lot at proven when onboarding a new client whereby the operations director activates the Proven platform, but the portfolio companies don't leverage the tool as much as they could simply because there's not enough sensitization to digital adoption. So you find that not everyone in the company recognizes or understands the benefits or importance of utilizing it effectively. Therefore, equally as important as beginning the digital transformation journey is nurturing and encouraging a culture of innovation, sharing, community, and digital adoption.
Conclusion
Venture capital firms recognized the need to transition to a digital platform much sooner than other institutional investors; but regardless of whether you are a VC firm, a small PE firm, or part of a larger private equity group, the case for investing in a platform for your private equity portfolio management is pretty straightforward. It's about embracing tools and solutions that make daily operations less of a burden and more holistic. It's also about thinking about building internal ecosystems that support your businesses.
By embracing this digital transformation, you position your firm for success in an increasingly competitive landscape. From streamlining vendor management to fostering collaboration across departments, the benefits are undeniable.
Ready to take the next step in your digital transformation journey? Explore our Easy Guide for Selecting a Vendor Management Platform to learn more about how you can build a platform tailored to your firm's needs.
