PE firms are finding not just greater uses for, but expanding sources of, data for everything from creating efficiencies and identifying opportunities to managing investments and satisfying investor demands for reporting.
That’s making so-called ‘data unification’ and ever more pressing need. “If you’re not able to unify all of these sources then you’re going to be left behind when it comes to making some strategic decisions,” says Pete Keenan, vice-president of finance at venture capital firm 645 Ventures.
Successful data unification requires heavy investment, though.
“Data unification is a significant data science and engineering project that’s out of scope or budget for most firms, but the outcome is something that more firms are asking for in order to improve decision-making and scale without adding headcount,” says Adam Devine, co-founder and chief revenue officer at Foresight Data, whose app collects private market firms’ data and provides tools to manage and analyze it.
The following contains excerpts, edited for brevity and clarity, of an interview between Private Funds CFOÂ and Keenan and Devine.
This article has been edited for brevity and clarity.
What are the big challenges faced by finance leaders without unified data?
PK: I think the biggest thing in finance is being able to connect the dots on valuations.
In finance, you want to be able to run different valuation modeling and exit scenarios and future financing rounds, but that can take a lot of time. You want to be able to do all of this within one single platform. With a data unification software, [data infrastructure managers] can also collect the KPIs and financial metrics from our portfolio companies and combine that with research that they do on their end related to the public markets to figure out what a security is worth at different exit values. They can free up a lot of my time, and focus more on forward thinking items as opposed to spending a lot more time on the reporting.
AD: I think the thing that resonates the most with our customers is the ability to look forward. So many other products on the market look backwards because they have one data set or they’re not predictive in nature. What we’ve set out to be is a one-stop platform to create a data-driven investor and a data-driven finance professional.
PK: Data and analysis are only going to be as good as the info flowing into it. You want to make sure that you’re aligned with your portfolio companies to transmit the information.
AD: I would say it’s an inability to do more strategic analysis, constantly feeling one step behind of GP and LP requests, and not being able to help drive IRR. If you don’t have a single version of the truth, it just slows the entire firm down. The worst fear of a finance team is providing bad data.
What’s an actual example of something that a finance team can do with unified data?
PK:Â The best example is that you have cap table data flowing in with your ownership percentage from one source, on top of financial metrics coming from the portfolio company, and data on your investment coming from your fund administrator, by unifying this data I can then take a portfolio-wide view to identify what companies should be prioritized and what companies may need more help than others.
Firms that have unified data are going to thrive because they will be able to better focus on their investments. If you have a billion dollar company in your portfolio but you own a quarter percent of it, it may not make sense to invest additional follow-on capital, even if it’s one of the best companies in your portfolio, simply because it’s not going to move the needle very much. On the flip side, if you have a company that’s valued at $200 million that you own 25 percent of, having that information at your disposal helps decide whether to re-invest.
AD: Combining fund accounting data, company KPIs and ownership data helps you prioritize your efforts. Which companies do we have a greater than 10 percent ownership stake that are outperforming? Which companies are struggling where we have a board seat? These are sophisticated questions that you can easily answer when you have unified data.
What are the risks associated with inadequate data unification and management?
AD: Missing opportunities or making bad investment decisions are the biggest risks of not having unified data. Without it, you don’t know which companies to prioritize and allocate resources to, when to exit a company or even when to raise the next fund. Blind spots in decision-making and missing out on opportunities to drive performance are problems that we solve.
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