Most private equity funds tout their relationships as a core advantage that differentiates their firm. But most are leaving millions in value from their networks unrealized. As a private equity fund, every major value-driving activity you undertake is a function of the strength and robustness of the relationships that surround the firm.
Finding great companies to invest in requires strong relationships with intermediaries, business owners, and a range of other deal sources. Speaking with industry experts and participants that you trust accelerates the due diligence needed to get to conviction. Getting a world class management team in place and facilitating business development introductions drives post-investment value creation. Most importantly, achieving the best possible exit comes from meaningful relationships with potential acquirers. More than capital, operational expertise, or industry knowledge — relationships are the most important asset your firm has.
The role your network plays is only intensifying, given the dynamics PE funds are faced with:
The growing presence of auction processes — with more and more companies working with intermediaries and going through some form of auction, proprietary deal flow is both harder to come by and more valuable than ever.
Rising price multiples — which makes your ability to drive value post-investment more important than ever to effectively close deals and drive returns in this environment.
Many PE funds have stepped up their investments accordingly — growing their base of operating executives to drive deal flow and provide assistance or hiring heads of talent. In fact, these initiatives —
alongside spending on going to conferences, hosting dinners, sponsoring industry events, and more —represent a meaningful percentage of the operating budget of a firm. Despite all of this activity, very few firm have any underlying system to capture the benefits of investing in their networks. Many firms spend millions annually on their relationships — but still have no intelligent way to capture the people they’re engaging with, maintaining the useful relationships over time, and mining those networks on behalf of themselves and their portfolio companies.
The consequences of this are sobering. A single customer introduction can drive millions of dollars in enterprise value. Having the right management team in place is often the differentiator between a successful outcome and a writeoff. And yet, the most common approaches for relationship tracking are to use manual spreadsheets or traditional CRMs — which are decent methods of tracking deals and prospects, but are focused on sales facilitation, not network management and engagement.
Having seen and struggled with these challenges first hand, my team and I and left the world of private equity and venture investing to build the relationship intelligence and engagement platform we wished we had, with the needs of the modern private investment professional in mind. Our product combines communications data with machine learning to capture the ever evolving relationships around your firm and provide you with actionable ways to engage your network to accomplish your goals. In doing so, we help you unlock the millions of dollars in latent value, while eliminating manual data entry.
If you’re a private equity investor and you’d like to hear more about how relationship intelligence can drive returns, I’d love to speak with you — feel free to reach out directly to me at firstname.lastname@example.org, or request a demo at 4degrees.ai