Progressive VCs and private equity are using tech and analytics to revolutionize investing
Private equity and venture capital investors are copying our counterparts in the hedge fund world: we’re trying to automate more of our job.
When I was single, I registered for (a lot of) dating websites. When I met my now-wife, I realized that any technology that can find me a spouse is a killer app. That’s why 40 million Americans use online dating sites. But, most of use raise capital and source deals the same way people looked for dates 20 years ago: networking at conferences (or bars).
Most of us want one spouse and we’re done, but in business, you want a lot of partners. I’d argue that the same type of technologies that have revolutionized dating can revolutionize our industry.
In liquid markets, most of the calories expended on technology and analytics are focused on trade selection, or “origination.” However, in private markets, there is more room to optimize across all 11 steps of the investing process. Below, I’ll walk through how progressive investors are using technology and analytics throughout all of their operations. To learn more about this space, I suggest joining an online community I co-founded, PEVCTech.
1) Managing the firm
Before you can actually invest, you have to manage your fund. This is harder than it sounds. In the private equity universe, most partners have primary training as deal-makers, not as managers. When I talk with junior personnel at private equity firms, the quality of firm management is a frequent complaint.
I’ve used Asana extensively to manage activities firm-wide. I also use several living Google docs to maintain the minutes and the group agendas for my fixed weekly meetings. I use another live Google doc to maintain my database of companies I’m marketing to other VCs. That Google document provides cut and pasteable text I can share with other investors, based on their stage, focus and appetite.
Other investors use Trello, Basecamp, and Monday for making sure that everyone at the firm knows each others’ long-term OKRs and short-term projects. Point Nine Capital uses 15Five for continuous employee feedback.
One aspect of management which merits attention is your own cybersecurity, which should not be left until a crisis to address. Small investment firms often have interns and entrepreneurs in residence passing through, each of which is a security risk. (See A comprehensive guide to security for startups by Bessemer Ventures.)
Kyle Dunn, CEO of Meyler Capital, says “investors should focus on building a large audience within a CRM system (having the ability to categorize your different constituents); communicate consistently to that audience; and implement an automation platform that can leverage lead score to profile interest. It sounds simple; however, very few asset managers actually do it.” I agree.
Many tools designed for B2B marketing in general are also relevant to investors. I know of funds using Constant Contact, Goodbits, Pardot and Publicate to create light newsletters for internal and external consumption. A major angel group uses Influitive, an advocate management tool, to track, activate and motivate their members. Other VCs use Contently* or Social Native* to create relevant content. Meyler Capital is taking the analytical rigor of modern internet marketing and applying it to fund marketing.
Point Nine Capital’s website is now powered by Contentful — it uses Unbounce for landing pages and Typeform for surveys and other data collection. “We’re using … TinyLetter for our “Content Newsletter” … and Buffer to schedule social media posts. Last but not least, we still use MailChimp to publish our (in)famous newsletter.” I also use Mailchimp for the teten.com and pevctech.com mailing lists. Point Nine Capital uses Mention for media monitoring. Teten.com is built on WordPress as my content management system.
I use Hootsuite to coordinate my social media activity, which consists of Teten.com, PEVCTech.com, Linkedin, AngelList, and (passively) Twitter and Facebook. I use Google Drive to host my conference presentations, which are all embedded at teten.com. I use Diigo, a social bookmarking tool, to keep a record of useful websites. I have also configured IFTTT to share on Twitter anything new I post on Diigo.
“There are two crucial aspects of marketing that investors often overlook: automation and analytics,” wrote Sabena Quan-Hin, Marketing Manager at Flow Capital. “Automation allows you to spend less time on tedious tasks and will help boost productivity, especially within a small marketing team. At Flow Capital, we use HubSpot’s sequences and workflows functions to automate a bulk of our emails and internal tasks. This provides us more time to develop meaningful relationships with prospects and customers. We use Google Analytics, HubSpot, and LinkedIn Campaign Manager for the majority of our analytics. For our content creation, we use tools such as Canva (graphic design) and GoToStage (webinars platform) to create and share content for prospects to find.”
3) Raising capital
Tim Friedman, Founder, PE Stack, said, “If I could offer one piece of advice to today’s managers, it would be to take the time to understand the demands of the modern institutional LP. Today’s investors are allocating more to alternatives in an environment where there are record numbers of new funds; and seeking deeper relationships with managers via direct and coinvestments. The past few years have therefore seen a huge rise in the proportion of LPs using specialized tools to manage and understand their portfolios, including platforms such as Chronograph, Solovis, Allocator, Cobalt LP, eFront Insights, iLevel, Burgiss.
The proportion of LPs using technology to manage their portfolios will continue to increase, and GPs unable to provide quality data to LPs will find it increasingly hard to retain and attract LPs. We are also seeing technology evaluation as an increasingly important part of LP operational due diligence. Excel and Google simply aren’t going to cut it if you expect to build a high quality institutional investor base.”
A more efficient approach to fundraising than haphazard networking is to mine the data exhaust from the limited partner universe to identify those LPs most likely to find your fund attractive and focus all your energy on them. I previously posted a detailed presentation with sales technology tools useful for B2B sales.
I always make a point of keeping firm records updated in the major data-trackers tracking the VC industry: AngelList, CB Insights, Crunchbase, Dow Jones VentureSource, Pitchbook, Preqin, and Refinitiv Eikon. LPs, coinvestors, and press use these tools, so I work for free for these data vendors to make sure that their data about our activities is correct. This is a great example of why data businesses have substantial moats.
Boardex and Relationship Science make it easier to understand and map social networks into potential limited partners. Cobalt for General Partners helps GPs to optimize their fundraising strategy. MandateWire and FinSearches provide leads on limited partners with new mandates which might fit your fund. Evestment is a platform for capital-raisers; Evestment TopQ automates private markets performance calculation.
I am a heavy user of DocSend, a secure content sharing and tracking platform that can be used to seamlessly share recurring materials with potential LPs. It provides analytics to track shared materials across target senders and improve the content for future leads. Point Nine Capital uses Qwilr to create modern, mobile-native collateral.
Most funds open data rooms to share previous reports, performance data, pitch decks, legal docs and other fundraising material with LPs. I’ve seen funds using Ansarada, Allvue, Box, CapLinked, dfsco, Dropbox, Digify, Drooms, Google Drive, iDeals, Intralinks, Ipreo, Merrill Corporation, and SecureDocs for their Virtual Data Rooms. These same tools are used by companies raising capital.
I’ve also experimented with using services which are marketplaces between LPs and GPs: CEPRES, DiligenceVault, FundVeil, Harvest Exchange, and Palico. Some funds are using technology-enabled intermediaries to help them sell to retail LPs, e.g., Artivest and iCapital Network.
Deer Isle Group has built the D.I.G. Beacon technology system, which automatically outbound-solicits a universe of over 10,000 institutional investors, without requiring LPs to register for an online network of funds.