Leveraging Technology as a Strategic Value Creation Partner for Private Equity Firms

How can PE (Private Equity) Firms maximize the value of their investments in their portfolio companies? Can they do that by organizing themselves as tech companies as well? Can they leverage their financial knowledge to build repeatable technology solutions to boost their portfolio?  

Yes, PE firms can also successfully run as software companies while they continue to use their investment themes in their portfolio companies. By leveraging collaborations with technology partners, building products and platforms as their intellectual properties, and offering their innovations to others in the marketplace, PE firms can successfully grow in size, profits, and service offerings. They get to keep such intellectual property to themselves without having any impact during the exit from one or several of their investments. However, this journey towards a future of agility, collaboration, and innovation starts with one initial step: choosing to work with a reliable product and platform development partner. 

And for The Times that are Changing  

Every business can operate as a software company. This is true for businesses of all sizes as well as domains. As digital solutions in finance and investment grew more efficient and intelligent (with AI, ML, BigData, etc.), they found new applications in PE (Private Equity) firms, VC (Venture Capitalist) firms, banks, and other financial institutions. A lot of work in the firms is about analyzing data from several perspectives and predicting outcomes from it. And these tasks are as difficult as they sound. Since Big Data solutions, Content Management Systems, and AI and ML applications are good at parsing data for patterns and predictive analysis, they can help portfolio and asset managers in creating value and managing portfolios. The advent of GenAI has given a new and exciting twist to the otherwise slow-moving investment vehicles to rapidly gain insights like never before. 

Collaborate with Software Product and Platform Development Partners 

Traditionally, big financial institutions and investment banks established their own technology wings and made custom software, of course with the help of IT consultancy service firms. This process is time-consuming and costly. Moreover, the consultancy firms undertake projects, not products, disallowing the sale of innovations to others.  

On the other hand, many family-owned businesses and other smaller firms didn't use technology beyond Excel sheets, Word, and PowerPoint. Some made their own extensions to the Microsoft tools, but they didn't market their operational expertise and inventions as digital products.  

As technology advances, it should democratize sectors that use it. Businesses in the Private Equity domain, whether small, big, or family-owned, should be able to leverage technologies just like big investment banks, Venture Capital Firms, or similar financial institutions. Technology partners (like Xebia) open the doors and demonstrate new ways of using technologies to work more smoothly and profitably. 

Understanding and Leveraging the Power of Technology 

Technology is a significant source of disruption. This is mainly because it has the power to increase the efficiency of operations and add new and comprehensive functionalities easily. The only way to handle technology disruptions is by adopting it. And it should be adopted across various operations, merging verticals and establishing data connections to make information consistently available. However, the adoption should be continuous and as fast as the advancements. Here are some software applications that PE Firms commonly use. 

1. ERP Software – ERP Software is used to track projects, budgets, and costs to ensure growth and profits. However, they need to be customized for the firm's goals and operations. A software development partner can build a custom ERP implementation most suitable for a PE firm's operational and strategic needs. 
2. Financial Research Software – Deep and objective research requires scanning a lot of files, separating information from junk, analyzing the data, identifying trends, and then corroborating it with the firm's expertise to shape it into real research. Together, research software and good firms can make this task easy and enjoyable.
3. Financial Risk and Health Reporting Software – Software can be used to gather and consolidate information regularly and insert checkpoints. Such Fintech applications are built for automated report generation. The software can assess risks and report the findings regularly.
4. Deal Management Software – Every deal involves a lot of paperwork and generates many documents. The Software can be used to store scanned documents, digitize them, and, with advanced NLP techniques, extract information that is then stored and made available.
5. Relationship Management Software – Imagine losing a deal or a new business opportunity just because you couldn't retrieve a contact number that you diligently saved in a spreadsheet whose file name you can't remember. Spreadsheets and even generic CRMs are not reliable. CRMs with Relationship Management add-ons help you manage relationships and simplify processes.
6. Management software for operational efficiency – Some projects involve too many stakeholders to follow up and update manually. Software applications help you with easy and automatic management. Some also help firms ensure standards and compliance with GRC (Governance, Risk, and Compliance) rules.
7. Integrated Platforms – Most firms use various software for their business purposes. These software applications need to be not only customized but also integrated to ensure security, data sharing, and management, and to incorporate hi-tech abilities.
8. ESG Reporting – ESG reporting in private equity is vital for attracting ESG-conscious investors, managing risks, ensuring regulatory compliance, enhancing reputation, and creating long-term value. It aligns firms with stakeholder interests and market trends, becoming a key differentiator in sustainability.
9. Applied & Generative AI – AI can be a game-changer for private equity firms by providing deep data insights, enhancing due diligence, predicting market trends, automating tasks, and personalizing investor relations. This tech innovation drives efficiency, decision-making, and offers a competitive edge.

Read also: "Tech is the New Two-Way Street Between PE and Portfolio Companies"

The Future of Technology in the Private Equity Ecosystem 

Software products in all domains, including the financial sector, are growing more sophisticated, connected, and intelligent. While some are turning into platforms, others are being replaced by platforms.  

Some of these platforms are like digital marketplaces, where various products and platforms participate to inter-influence the participating ecosystem players and increase the depth and width of each other's service offerings. 

There are other kinds of platforms, too. These platforms connect various digital tools like ERP, CRM, Data, Cloud tools, and infrastructures. The primary users of these platforms - employees, portfolio companies, asset managers, portfolio managers, and other stakeholders, benefit from better insights, smooth operations, transparency, and clarity offered by these platforms. 

These platforms enable PE Firms to make connections that help them build a collaborative business ecosystem. The ecosystem can extend beyond the boundaries of domains or create specializations in specific domains. Either way, these connections can be leveraged by PE firms with the help of software expertise from offshore product development firms. Software expertise is the key for PE firms to succeed in the digital world.  

Advantage PE

Imagine what happens in the ecosystem of such a private equity firm, where innovation is happening 360 degrees. While most of the decisions are financial, the PE firm's tech adoption will influence how it conducts its business. A private equity firm that is also a cutting-edge tech company has unique advantages: leveraging advanced tech for superior market analysis, predictive insights, and efficient due diligence. It can optimize investment decisions, streamline operations, and offer innovative solutions to portfolio companies, setting it apart in the competitive investment landscape. This dual expertise attracts tech-savvy investors and enhances the firm's ability to identify and capitalize on emerging tech opportunities. 

Win with Xebia 

Xebia is on a mission to create digital leaders. With its deep expertise in enterprise-class product and platform development, building high-performance, scalable systems for large enterprises of this world, Xebia is uniquely positioned to help private equity firms stay competitive and increase investor confidence.