Take note, Bill Gates ? some private equity firms are finding that Microsoft Access and Excel no longer suffice for keeping track of their contacts, which have grown into the thousands.
At Madison Dearborn Partners, a Chicago buyout firm, the process of managing the contacts the firm has built over its 15-year history had gotten so unwieldy that drastic measures had to be taken: just two months ago, the firm centralized its three databases into a new system, and it created a separate position to man the system.
The specialist role of a contact management professional is not yet common at private equity and venture capital firms. It is often unplanned for, at least at the firm’s inception, but recognized when the firm reaches a tipping point.
?I can’t tell you how many hundreds of LPs and contacts it took until we realized we needed a separate person [to manage our contacts],? says Mark Greenstein, chief financial officer at Draper Fisher Jurvetson, a Menlo Park, California venture capital firm. ?To some degree you reach a pain point. It’s not obvious.? DFJ’s pain point occurred a few years ago, when it had under its umbrella some 20 to 25 funds, 700 entities, and 600 to 800 contacts.
The contact management professional ? known as ?limited partner administrator? at DFJ and ?business analyst? at Madison Dearborn Partners ? is tasked with managing and updating the contact management database. This means keeping, inputting and confirming on a regular basis information including names, addresses, email addresses, telephone numbers, fax numbers, taxpayer identification numbers, tax-related information, bank accounts for distributions and brokerage accounts for distribution of shares of stock.
The information tracked is not only that of the firm’s LPs, but of the LP’s advisers and anyone else who needs to be kept in the loop for any correspondence or notification, including accountants, lawyers, tax advisers and investment advisers.
Getting the distribution process right for this growing constituency is no mean feat. Capital calls, distribution notices, quarterly and annual reports, and tax documents have to go to the right people, many of whom have idiosyncrasies; some want reports in hard copy, some via email, some by fax. DFJ now manages almost 40 funds for the firm and its affiliates, including side funds and special purpose vehicles, just over a hundred legal entities and over 1,300 to 1,400 contacts. Madison Dearborn Partners, which is currently raising a $10 billion fund, has approximately 400 separate LPs and close to 2,000 contacts.
?It was becoming too big and unmanageable in Access,? says Michael Wilson, chief financial officer at Madison Dearborn Partners. ?We had three separate people keeping three separate databases for different purposes.? Just two months ago, the firm had separate databases for fundraising, financial reporting and general contacts.
?Probably 80 percent of the data overlapped,? Wilson says. Then the firm bought a new product from software provider TheNextRound in order to strive for data consistency. But getting to that point wasn’t necessarily easy, or straightforward. ?In the first couple of months, [the challenge was] user acceptance more than anything in using the software,? says Wilson. The ownership of the system lies with James Kouris, Madison Dearborn Partners’ chief information officer.
DFJ uses the contact management module of SunGard’s Investran system, which falls under Greenstein’s domain, finance. The decision to create a specific position was part of the evolution of the firm. Where there used to be just a single person responsible for contact management, document execution and quarterly reporting, there are now three separate positions with responsibility over each area at the firm. Similarly, there are now four controllers, who each have assistants, where there was only one controller before.
?As the process has grown we have tried to assess where resources are needed and what the most efficient ways to deploy them are,? says Greenstein. ?This was one where it was clear there is a full time job for one person. There’s a high volume of this sort of activity that we need to do, so having it standardized where one person can do it relatively easily and quickly is important to us.? Incidentally, the creation of a specialized contact management position also occurred when DFJ was foreseeing additional growth in its operations, particularly in the support they were providing to their affiliates; the firm now supports nine of its 23 affiliates in Menlo Park.
Indeed, standardization and timeliness are the top two attributes in reporting that investors look out for when assessing a firm. LPs often tell us that the back office is a reflection of the quality of the private equity firm. ?The [general partners] who organize their back office better very often did a better job of investing,? says Kelly DePonte, a partner at private equity advisor Probitas Partners in San Francisco.
Bill Gates needn’t worry about falling from his perch, but GPs should be reminded that keeping investors happy is becoming more important than ever. There is capital ready to be deployed, but attracting and keeping LPs coming back for more boils down to the maxim of ?customer is king,? and, sometimes, just getting the basics right.