Attribution technology

It’s easy to see the value of technology for back office activities like fund administration and accounting. After all, isn’t the back office simply numbers, systems and protocols? Of course software can streamline that work.
Dealmaking, by contrast, involves so many more intangibles, like negotiating relationships and testing hunches. How can the cool calculation of a database capture the magic of a landmark deal? Why should an investment professional be judged by anything but the success of their transactions? Isn’t everything one needs to know about the front office contained in the IRR? Apparently not, judging from the number of firms introducing software solutions to track and report their deal activities.
Front-office systems range from high-end customer relationship management (CRM) software to cutting-edge databases that track investment decisions from the first phone call to the final exit agreement.
Such offerings map the series of individual steps that resulted in pulling the trigger on that acquisition, restructuring that portfolio company or choosing that exit route. These systems promise new rigor in evaluating which sourcing relationships are paying off, or which dealmakers are sloughing off.
Unfortunately, no matter the cost or sophistication of a system, they all rely on the deal professionals inputting who they call or meet with, and why they followed up one lead instead of another.
The old axiom “garbage in, garbage out,” is especially apt here. How can the firm get their dealmakers, often already working marathon hours to input data on how all that time was spent?
Software providers are sensitive to this and often embed their systems into an exiting application like Outlook, but that convenience only comes with proper training and set-up. Firms should mandate the use of these systems but the best mandates are more than a simple decree. Partners should use reports from these systems when conducting weekly deal meetings so they become integrated into the daily life of the firm. Most importantly, the intelligence culled from these systems should be employed in determining deal attribution. If investment professionals know these systems are writing their track record, they’ll have real incentives to take the time to use these solutions.
If properly trained, deal makers won’t need that much time as vendors strive to make data entry as efficient as possible. Most of these front office systems appear as an extra tool bar on MS Outlook, so that before an email is sent, or a phone call is made, professionals can click on a button to save that email, or jot that call. Tracking this activity is important because professional investors, when working on one thing, incur an opportunity cost in the form of some other thing they’re not pursuing. “One venture partner told me that every click [of the mouse] they make costs them $1,000,” says Krassen Draganov, CEO of Netage Solutions, Inc., which offers the Deal-Dynamo program, dedicated to front office tracking. LexisNexis InterAction, a CRM solution tailored for professional services firms, offers the ability to automatically store email exchanges in a central database that can be searched later, among its many features.

Stress the shortcuts
Ease of use is stressed by vendors during the sales process, but they also need to be shared with end-users during the training process.
“We invested heavily in training,” says Lisa Weil, a client relationship specialist with Chicago-based buyout firm GTCR that uses InterAction.
“That takes time and effort up front, but our governance committee understood it ensured efficiency later on.” That efficiency comes not just from educating the firm’s staff about short cuts, but designing a system that caters to their habits as well.
“Having the principals involved in the requirements and design phase was vital,” says Weil. How categories are defined, and what pop-up screens appear for a given professional should be a collaborative effort. Relevant Equity Systems, another software provider, aims to have the categories reflect the firm’s internal lingo. “Some terms are fairly clear cut, but what do they mean when they say ‘reject,’ or ‘pass’?” asks Ray Haarstick of Relevant. “So we want to make sure the categories, and the entries are based on their common language.”
Finding that common language in large firms may be particularly difficult. “Our individual investment teams had always been somewhat autonomous so they had their own way to classify deals in the pipeline, and the metrics that they tracked varied by team,” says Rob Bemis, director of information systems at Lexington, Massachusettsbased Highland Capital Partners. The firm has three other offices in Geneva, Shanghai and Silicon Valley. “Collecting all of the historical data across teams, and getting agreement across teams of which methods and terminology to use going forward was one of the biggest challenges,” he says.
Relevant also tailors its solution to different end users, from the associate that’s making cold calls within a given sector to the partner that’s wrestling with terms for financing. “Each has their own set of pop-up windows pertaining to their role in the deal pipeline,” says Haarstick. He explains while this specificity may make set-up more complicated, it simplifies entry screens for the professionals.
A great design and comprehensive training program can be driven by a vendor, but the long term success of any system lies with the managing partners of the firm. “Our solutions are adopted from the top down, not as a grassroots movement,” says Draganov. He explains that if the managing partners of the firm don’t mandate the use of these systems, the other investment professionals won’t make entering their intel a priority.
“Sometimes it boils down to a cultural issue,” says John McDonnell of LexisNexis, which offers the InterAction system. “Some of these execs can be hesitant to share their data, and that’s where management steps in to say, we’re all going to share our relationships with the firm as a whole,” he says. That may work when it comes to the one-time upload of their Outlook contacts, but that mandate has to be substantiated by more than a memo announcing “all aboard.”

Mandates in motion
DealDynamo includes weekly deal reports that show the current deal pipeline of the fund, and offer a chance for the investment professionals to polish the reports before they’re distributed. “We use these reports in our weekly meetings,” says Highland’s Bemis. “If you want to discuss an opportunity, it has to be on this report, and in order for it to be on the report, it has to be in the system.”
Bemis explains that the reports are downloaded 24 hours before the weekly deal meeting, to give the professionals a chance to add to or edit the report, before the final version is delivered 30 minutes prior to the meeting. “If you put a system like this in, but keep your report developing process separate, there’s nothing forcing the users to get the data in,” he says. “No executive wants to arrive to one of these meetings with a thin report, so there’s a real effort to be as comprehensive as possible in describing the deals they are working on,” says Draganov.
Beyond good old-fashioned peer pressure, several of these systems can make certain fields mandatory. “This means that the executive has to fill in all the relevant fields before the record can be saved – which is most useful when the associates are filling in the more straightforward details about a deal opportunity – such as the name, address and industry of a target,” says Haarstick.
For the less tangible facts surrounding a deal, the very thing that prompts most firms to adopt such a system, there may be only one foolproof means to ensure investment professionals map their decisions: link the process to performance reviews. “The firms that have the most success with our system communicate to their teams that these reports will contribute to how they’re judged as dealmakers,” says Draganov. “If the investment professionals know that the report will be used to discern the value they bring the firm, there’s little doubt they’ll expend the effort.”
Most software offers some reporting function that can download the collective effort of a given dealmaker, but systems that act primarily to upgrade contact management like CRM are more likely to provide evaluations of deal sources, rather than deal makers. “Inter-Action allows users to track emails, phone calls, meetings with say,
an investment banker,” says McDonnell. “You’re then able to note that over the past year they suggested X, Y or Z opportunity in that email or phone call – and then weigh that against how those referrals panned out.”
Products such as DealDynamo and Relevant are more likely to track decision making sufficiently to be used in performance reviews, given that they track transactions, not just contacts. Relevant might be the wave of the future in that they’ve recently introduced a “partner attribution” facet to their offering.

All about attribution
Relevant offers two distinct products: Relevant CRM, a web-based tool dedicated to the front office and EquityWorks that marries the firm’s back office and front office solutions. EquityWorks now features a partner-attribution component that gathers realized and unrealized value created by a fund and allocates it back to the individual professionals and teams that created it.
“Although we were getting by with our legacy attribution system, it made perfect sense to have Relevant extend EquityWorks,” said Roberto Ramirez, vice president of finance, for Boston-based TA Associates in a statement. “We used to dread the compilation of partner attribution packages. Now we’re generating easy-to-read reports that measure the value created by individuals, job roles and teams over various time horizons.”
If attribution is based on the data within the system, every investment professional will have a compelling rationale for logging every call and explaining every decision within the database. “This is the biggest carrot you’ll ever be able to tangle in front of the deal pros,” says Haarstick. Relevant’s peers like DealDynamo don’t offer partner attribution components but the weekly reports can go a long way to tracking the performance of individual deal makers, and are less expensive than the EquityWorks solution.
What’s clear is regardless of the front office tool, the best way to ensure quality data going forward is to link their daily entries to their compensation, which speaks volumes more about the firm’s priorities than the umpteenth scolding for not filling in all the fields.