When Mark Lessing joined Insight Partners in 2000, the iPhone had yet to be invented. Facebook and Twitter did not exist. And Lessing found himself gathering financial data from roughly 40 portfolio companies and inputting it into a monolithic spreadsheet nicknamed ‘the Bible.’ Nearly two decades later and things look very different in Insight’s finance function, but the road to operational efficiency has been far from simple.

‘The Bible’ was every bit as unwieldy and inefficient as it sounds. Each month, sometimes weekly, and at minimum every quarter, Lessing would email all the portfolio companies to collect data tracking cash burn rates and other key financial and performance metrics. The data was extracted from the emails and transferred manually into the spreadsheet, which had numerous columns detailing the key metrics of each company.

“This was very manual and it was difficult tracking restatements, changes in revenue recognition policies, foreign currencies, etc,” Lessing tells Private Funds CFO. “There was more risk of error because of the manual intervention, and less accountability because inputs weren’t consistent from each portfolio company.”

As the company continued to grow, so did the problems with this system – there was too much data to keep track of manually.

“I knew that we were sitting on a wealth of information and had to do something better with to help the investment team,” Lessing adds.

He knew what was needed: a platform to gather and collate portfolio company data efficiently and consistently, that could be interrogated in real-time by the investment team. At that time – in the early 2000s – such a platform did not exist. Lessing, a technologically-minded CFO, set about building the system himself with some tech support from India.

It took him about two years to finesse the platform, which allowed portfolio company CFOs to log-in and input their financial data directly. In turn the CFOs could see how they compared with the other Insight portfolio companies. “The system was really good,” says Lessing.

But regardless of how well a system functions, if it doesn’t get used, it isn’t much good. Lessing had an issue with buy-in: portfolio company CFOs were not logging in to upload and, crucially, Insight’s senior deal team was not pushing them to do so since there were other priorities at portfolio companies. “I needed them to tell the portfolio company CFOs that this was part of their job,” says Lessing.

Lessing found himself pretty much back at square one. “I was the only one using it,” he says.

“People weren’t logging on to use it. They were sending me the data manually and I was entering it myself.”

Aside from the lack of a sufficient carrot or stick to compel the portfolio execs to use it, the system also suffered from being born before the iPhone revolution. “The software was really only able to be used on a desktop, since laptops and smartphones weren’t as good in the early 2000s, which made it harder to access the data.”

Having got the self-built platform up and running, after about two years Lessing decided to shelve it. He was still determined, however, to move away from the biblically-proportioned Excel spreadsheet.

He kept his eyes open for an outsourced provider and accepted every meeting invitation from developers that came his way. In late 2008, he met with a firm spinning out of Blackstone, ultimately called iLevel Solutions. He was struck: “This is what I had built,” he remembers thinking to himself. But it was too expensive and not much of an improvement, he decided at the time.

But as Insight grew, the need for a sophisticated portfolio management team grew with it. In 2015, the firm started investing its ninth fund with aggregate commitments of nearly $5 billion. “Within a few years, we were projecting to have well over 100 active portfolio companies and in over 350 businesses since our inception. So we had an immense amount of data on private software companies – a unique data set – and wanted to ensure we could effectively mine and utilize it,” says Lessing.

Lessing and two finance colleagues, Stuart Mayer and Matthew Lefkowitz, took meetings with all-comers, ranging from a three-person startup in India to some MBA students. “They either wanted us to buy the software or give them a job,” Lessing muses.

Throughout that process Lessing said he met with any service provider he could and recommends the same approach for any company looking to invest in software. The selection and diligence process involved just three members of the firm doing “95 percent” of the work. The VP of finance and a senior financial analyst reviewed the different software packages and demos and they brought Lessing into the demo meetings they thought most promising.

Part of the desire to take every meeting stemmed from the type of investments Insight makes. “I would get cold calls, and emails on new products all the time and we did every one of those meetings because our firm also invests in tech, meaning everyone here has an opinion on tech. If you’re buying something from Salesforce, someone will say, ‘Why didn’t you use this other company?’ I had to really be open to any product.”

It was iLevel that Lessing eventually returned to. At the time Lessing’s team was considering a cheaper software option, but the final decision came down to a conversation between Lessing and his VP of finance about cost. “I said, ‘We don’t want to be cheap on this. Spending a few thousand dollars more a year is well worth it because if we use it the way I expect we’ll use it, it will pay off in a big way.’”

The implementation

The key to a successful implementation comes before any changes are actually made. Lessing says Insight knew exactly what it wanted to do with the software and how it wanted to disseminate the information.

“People sometimes buy tech, and they don’t know what they’re going to do with it or how they’re going to use it, and they don’t implement it correctly,” he says.

At first Lessing did not inform the whole firm about the software and kept it “close-knit” within just a few members of the finance group. This gave the team enough time to ensure the software worked as intended.  “When you release tech at a firm and it’s not perfect, people log in and they’re like ‘it doesn’t make sense,’ or ‘it doesn’t work,’ or ‘it’s slow,’ they’ll never log in again,” he says.

Lessing estimated it would take a year to properly implement the new platform, but in the end, it took only three months.

Present day

Insight Partners now has nearly 200 investments to track. Switching to a third-party software has allowed the firm to disseminate information to all employees within the firm. Roughly two-thirds of those employees log in to the portfolio tracking software weekly, at minimum, to look up information on a portfolio company.

But now there’s another challenge, says Lessing: technology changes fast and new software is being developed every day.

“With technology, what was the best three years ago might not be the best anymore,” he explains. “Since this is third-party software. I can’t call iLevel and say, ‘We want you to do this, this and this,’ and then they do it tomorrow.

“Now that the whole firm is logging into it, I get a lot of feedback. People always have comments, so the challenge is, when you’re working with a third-party vendor, how do you push them to make sure they’re well-funded and constantly making changes and improvements to the tech?”

Lessing is not sentimental about the technology and notes that they could easily switch if the firm doesn’t keep up with its growing competition.

There is benefit, he notes, from using third-party rather than self-built software. The vendor’s access to other clients, for example, gives them a wider perspective on potential upgrades and technology features available to private equity firms.

Return on investment from a technology upgrade is hard to measure. Lessing knows CFOs are cost-minded, but says eventually they have to take risk that fits their firm’s situation and size.

“If a CFO is doing their job, they can’t always keep their wallet tight,” he says. “If you don’t risk making an investment, you’re not going to improve. If you make the right investment and the firm grows and has more money and can afford it, you’re not going to look back and regret it.”