As private equity grows more sophisticated, the demands on a firm's information technology increase, as well. Consequently, being the point person for a private equity firm's internal information technology infrastructure often requires a healthy dose of determination, dexterity and – perhaps most importantly – diplomacy.
Most private equity firms are small businesses, and all small businesses face challenges in building sophisticated tech infrastructure. But in private equity, these tech needs are amplified. We spoke with a handful of in-house IT gurus to find out some of the most critical responsibilities of these stalwart souls managing the technology of private equity firms.
Overall uptime and connectivity
At the crux of the concerns voiced by in-house IT professionals at private equity firms is having their systems up and running, and being able to access those networks and data whenever and wherever their GPs wish. The jet-setting, never resting, data-intensive culture of private equity means it is essential for GPs to have a reliable system that's up and running virtually 24/7, and accessible from virtually any corner of the world.
And if a blip does occur, the GPs won't hesitate to investigate. ?I cannot tell you that, if my system went down, I wouldn't be visited by 10 to 15 people,? says Deborah Cooper, who as vice president of administration at middle market-focused Frontenac Company has the responsibility for the private equity firm's overall IT infrastructure and day to day IT operations.
Consequently, having sufficient storage capacity and reliable networks is front of mind for IT pros. ?We always have one-times what we need to make sure we don't max out. It is something that is always a top priority for the person who's responsible for managing the firm's infrastructure,? adds Cooper. ?It's a very information-intensive business, so we have to manage data storage very carefully.?
Disaster planning and recovery
About five years ago, Cooper was sitting in at Frontenac's annual budget meeting, when the firm was evaluating whether it wanted to have a fully redundant IT infrastructure created off-site in case something went awry at the home office.
?Obviously, it was very expensive to do, and the partnership decided it didn't want to spend over $500,000 to have a fully redundant infrastructure,? says Cooper.
But then the firm met with near tragedy on the night of December 6, 2004, when a non-fatal fire broke out in Chicago's landmark LaSalle Bank building, which Frontenac called home, forcing the firm to temporarily relocate. Even though the firm's disaster recovery plan allowed it to retain all of its data through the fire, the GPs' priorities shifted.
?After we survived the fire, we did spend approximately $100,000 to maintain the redundancy to save what's most important to us. Now we have redundancy in an offsite location,? notes Cooper.
One Massachusetts-based venture firm has also made notable strides in the disaster recovery and planning area recently, says its IT director. The firm now subscribes to a third-party email service and backs everything up over the Internet to a service provided by LiveVault, rather than just backing up on tapes. As a result, the firm enjoys 100 percent data recovery should a disaster occur. ?The only delay in getting back on line would be establishing new real estate,? the IT director says.
An invasive threat that IT pros encounter more on a day to day basis is that of spam and viruses, which presents the IT director with what he describes as one of his biggest challenges. With staff connecting laptops to the internet while outside of office protection, the potential for contacting spyware and malware is much higher. ?We probably rebuild a PC each month here,? he says.
At Texas-focused Austin Ventures, vice president of technology Dave Benton has spearheaded the VC firm's adoption of ?virtual environments? to help prevent GPs from overwhelming their PC's capabilities. ?Our investment guys constantly install software – when performing due diligence – to test it out, but a lot of it isn't even the alpha version and tends to blow up their machines,? says Benton.
By using a VM (virtual machine) player, Austin's team can add new software, ?and if it does blow up, it doesn't affect productivity,? he adds. ?These are simple things that should be obvious. I do this myself – why not everyone else??
Cleaning up the garage
?We took a very close look at our infrastructure after the fire, when we literally had to rebuild the infrastructure,? recalls Cooper, who added that the firm installed new servers after the incident. ?As a result of the fire, we were forced to look at everything together,? and as a result, the process of rebuilding the entire infrastructure allowed a very ?smooth system? with very sound integration.
That is a drastic change from what Cooper found when she joined the firm twelve years ago and asked to see the communications room. ?I was led to a closet – or more like a cabinet. We opened it, and I found a lot of telephone wire, et cetera. I thought to myself, ?We have some work to do,?? she recalls.
However, when a firm is outgrowing itself, it's not all that uncommon to see jerry-rigged networks and the resulting regular system crashes. ?Twelve years ago, while annoying, it wasn't as critical as it is now,? says Cooper.
The Massachusetts IT director encountered a similar sight upon joining his firm. ?When I came here four years ago, it was a glorified desktop shop in that we had a bunch of PCs acting as servers, firewalls and routers,? he recalls. ?We've gone through a corporate wide upgrade in the last two and a half years. With that in place, we have state of the art interoffice connectivity and world class videoconferencing. We have people from other VC firms visiting to review our setup.?
?We don't want to be the guinea pig, but we don't want to be the caboose,? says Cooper of Frontenac's style toward adopting new tools and software. ?We don't want to be the last one where we feel rushed to get things done more quickly than we would like to, but we also don't want to be the first, because we want to make sure the bugs have been worked out. It's a fine line – we want to be on the cutting edge, but we don't want to jump out.?
Not only is it important to consider the merits of the new product itself, but those looking after GPs' technology needs should also evaluate how that product fits in with the inclinations of the end-users – the investment professionals and the finance and support team.
For instance, one tool that many GPs consider helpful in theory but continue to face difficulties with implementation is that of document management systems. Cooper says that Frontenac considered implementing such a system a few years back, but ultimately didn't.
?These systems are very expensive – you could dump all this money into it and try to implement it firmwide, but if the end-users don't modify how they work, it's not going to work,? says Cooper. ?At this point, it would be fiscally irresponsible and counterproductive to have a document management system here.?
Adopting new products in an orderly fashion is important as well. The Massachusetts IT director says his firm now standardizes the physical equipment it uses on the IT front. ?When I arrived our staff was using a variety of Sony, Dell, and Gateway computers, and all different types of PDAs. It was a support nightmare,? he recalls. ?I impressed the need to standardize on one vendor along with having all technical purchasing done by the IT team. Employees now understand that rollouts are done in an orderly fashion with testing first and are based on need, schedule and budget.?
Stuart Appley, chief information officer of Walden International – which operates out of two offices in the US and nine offices in Asia – says the geographic dispersal of the partners means that content management and collaboration across the firm's offices is important.
According to Appley, all of the firm's offices are connected via virtual private networks (VPN). At Walden's Singapore, Taiwan and Hong Kong offices, using VPN has worked well, since bandwidth availability is generally good in those countries. However, to bring more capabilities – such as advanced videoconferencing capabilities – to its offices in China, Walden would have to upgrade its network. So far the effort to obtain funding for the network upgrade has been two years in the making.
The in-house IT support for Walden's offices in Asia is housed at the firm's Singapore office, where two staff members provide support for all the offices in that region. ?The model we try to use for our offices without in-house support is to find local back-up support, who can fix a hardware problem or problems with the phone system,? says Appley, who notes that finding the right local vendors are probably the biggest obstacle to providing IT support for Walden's Asia-based professionals – particularly the ones based at the firm's offices in China.
The Massachusetts-based IT director calls providing equal, fair home IT support for the partners of the firm ?a challenge in itself.?
Upon first joining, the IT director was asked to review the venture firm's IT budget. He found that the firm had spent a whopping $110,000 in 2002 on third-party IT support to help the partners set up home networks and remote access. With that statistic in hand, the IT director convinced the partnership to adopt a formal policy of providing each partner with support for one home PC with access to the firm's network via broadband. Any other bells and whistles would have to be paid for by the partners themselves.
?They liked it in theory until it affected them in practice,? says the IT director of the new home-support policy. After receiving calls for IT help from spouses and offspring, the IT director finally designated a few third-party resources to help staff with their home PC issues above the basic setup his staff provides – with the staff member receiving the bill directly. ?The home support tangents we were getting involved with were starting to affect office productivity,? says the director.
Staffing and outsourcing
?I was amazed when I came to the [private equity] industry at how well-paid the IT folks were – it appeared to be about 25 percent above my public company experience,? recalls the Massachusetts IT head. ?It didn't take long to find out why. Private equity and venture capital users are very demanding – requiring almost 24/7 support – and we pretty much provide that.?
Despite the demands, the IT support for private equity firms – and particularly the smaller venture firms – tends to be provided by a very small number of in-house pros, if the function is not outsourced altogether.
For smaller firms that don't have the resources to hire an in-house IT guru, outsourcing can be a good option, provided one finds the right provider. However, some in-house tech experts who have looked into bringing in additional support from outsourcers have not been all that impressed with the experience.
Such was the case when Benton tried to bring in an out-sourcer to Austin Ventures. ?They're not accustomed to the fact that our people don't want to learn it, they just want it to work,? says Benton. ?If they are working on a $10 million deal, and all of the sudden they can't connect, it's bad. A lot of these local consulting companies don't have the resources for this level of service, and to the bigger consulting companies, we're too small.?
There is also the issue of ?being at the mercy of the outsourced company,? says the Massachusetts IT director. ?They could yank out of their ?placed? tech at a moment's notice. The localized skill set goes with it. I have never been a proponent of outsourcing.?
Sharing the wisdom
In-house IT professionals can create great systems for their partners, but teaching the partners how best to use these tools is another matter.
?Even though VCs are very tech-focused and invest in tech-focused companies, some don't use it as well as others,? notes Walden's Appley.
?The investment professionals are hard to pin down,? says the Massachusetts IT head, who says many of the firm's investment professionals are extremely busy or not available enough for him troubleshoot problems, much less for him to apply a formalized IT training policy.
?I've tried to have lunch sessions or to create cheat sheets for simple things,? he says, adding that the success of such initiatives has been limited. ?That's one of the most frustrating parts of my job – a lot of people just want [the technology] to work – so do I.?
?My biggest allies are the executive assistants,? he continues, saying the executive assistants have a monthly meeting, and the IT director often sits in to talk about a topic, such as PC tips and tricks, BlackBerrys, or videoconferencing. ?They can share the information with the staff. At the very least, they become a slight extension of my team.?
At Frontenac, Cooper finds that getting the executive assistants involved can help the firm move forward on best practices and adopting new IT habits. With regards to keeping the firm's databases and contacts current, ?Those that have heavy data needs tend to have more appreciation for putting data in,? says Cooper. ?We are trying to widen the scope [of data input] and get the assistants involved.?
According to Benton, an IT training policy he developed for Austin Ventures has been difficult to execute. He is restructuring the program in such a way that its benefits are more readily apparent to the partners. The new program is based, in part, on envy. First, a pilot group at the firm will experiment with and be trained on a new product; then when others in the firm see the functionality and value of the new product, ?they're asking for training at that point,? says Benton.