How Private Equity Firms Are Creating Value Through Technology

All major organizations worldwide are now using the technological revolution to advance themselves. And the world of private equity is no exception.
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Many private equity firms are now in the process of digitizing their existing processes. However, digital strategy needs a strong foundation. Today, many companies hire specialized professionals for digitization. These tech leaders help understand the market landscape and use digital capabilities to manage and optimize portfolio companies. 

A technical leader should have a deep understanding of emerging technologies and how to implement them with the firm’s existing infrastructure. A good leader should assess the digital spectrum and craft a strategy based on the existing landscape. The first point of focus for digitization should be the firm’s core functions. Once that’s done, the leadership should work on improving efficiency and generating ROI. 

Many private equity firms are now using cloud analytics, big data, and IoT to create technology-driven features. For example, you can use a data management vendor such as Sharepoint for document handling. Since these systems are highly scalable and efficient, you can also use them for real-time data research, analysis, and reporting. 

Similarly, visualization tools can take data from different sources and create a single repository of useful information. Businesses can implement performance monitoring dashboards instead of going through spreadsheet reports. Asset management becomes easy when all information is available at one spot.  

How to improve an equity firm’s value through tech  

1. Data 

Data is rightly called the oil of the 21st century, which highlights the importance of this asset for most businesses. And in private equity firms, it becomes even more important to use data-driven solutions. 

Often when businesses use old methodologies of storing data (such as Excel sheets on local computers), the data becomes stagnant and siloed. As a result, this data’s scope is limited, and you can’t use it for driving decisions. 

For example, if you’re using market information for stock analysis, you need relevant and current data for accountability and risk management. This can only be done if data loading and processing pipelines have been set up for scraping and analysis. Data automation on an organization’s level can revolutionize a firm’s operational proficiency. 

2. Artificial intelligence (AI)

AI and machine learning algorithms can crunch data and generate results in real time. They are very helpful with large datasets since humans would take a huge amount of time to go through the data. Using them allows companies to stay ahead of the curve. 

Today, equity firms are also insisting their portfolio companies adopt AI and machine learning for their business processes. 

3. Transparency 

Most private equity firms are now moving towards operational transparency, i.e., a stage in which the end customer knows about the exact status of the project. Many clients also use this information for risk prevention. This is also useful for firms with portfolios that must be disclosed frequently (such as sustainability ventures). 

You can easily implement operational transparency through robotic process automation (RPA). It allows businesses to use bots instead of humans to perform repetitive tasks such as login and report generation. Granular assessments, such as the one generated by RPA, also help clients make up their minds about the next investment, thereby fast-tracking the next venture. 

4. Identifying possibilities 

Many private equity firms now use technology to read between the lines. An excellent example of this is due diligence. Companies used to spend a lot of time and effort on due diligence since it can help you better negotiate a deal. But through technology, this process has been significantly shortened. This directly improves the bottom line of the firm.

Understanding technology can also improve a company’s portfolio. Technology-driven companies are known for providing high equity multiples, much more if they go for IPOs. In addition, many equity firms use data vendors that crunch and analyze data to generate insights about a company’s future. This helps equity firms in sourcing deals and managing regulations. 

5. Relationship management

Like many other businesses, equity firms are using customer relationship management (CRM) software to digitize their customer relationships. Many businesses use CRM software to manage vendors and third-party contacts. You can also use them for assessing your business’s needs and forging partnerships based on them.  

6. Communication

Communication is an integral part of business management for many companies. All communication, therefore, should be quick and efficient. Delays in conveying important information can be troublesome for the firm. 

Even though COVID-19 wreaked havoc on existing communication protocols for information exchange, technology kept people connected. Many companies are using virtual hangout products such as Zoom, Teams, and Whatsapp for B2B conversations. And since these products allow you to broadcast messages, organizations have started using them for interdepartmental/business communication. 

So, what’s the next step?  

Private equity firms traditionally have been slow to adopt new technologies. But with the early adopters showing good results, many companies have now made digitization a part of their modernization strategy. Today, all major equity firms use development resources to help improve their operating performance. Even though transforming legacy systems is difficult, equity firms are now hiring specialized engineers to revamp them using new technologies. 

Since investing in technology-driven solutions is an equitable investment that can reap long-term rewards, the only question that remains is how quickly equity firms can adopt new technologies. The competition is cutthroat, and any delay in embracing new technology can significantly affect ROI. Whether you change your existing infrastructure yourself or you hire an external vendor, the time to take action is now.

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