How Technology Can Add Value to the Private Equity Funding Cycle

The rapid pace of private equity funds has grown over the years, as high returns and low volatility continue to drive capital inflows from existing and new institutional investors. Even during the pandemic, PE-VC investment has reached around $70 billion, and deal activity has been very strong and exit momentum is complementing each other. Private equity (PE) is expected to witness strong growth over the next few years, with various factors contributing to this accelerated growth, but one of the most prominent is the use of technology to add more value to fundraising. Technology has effectively simplified the investment life cycle and improved operational efficiency, however, fundraising is another key area where technology can play an active role in driving the increasing digitization of private equity.

Several larger private equity firms are now actively participating in fundraising models that are expected to meet their fund goals. But the red flags of a recession and other market turmoil can seriously raise the stakes of raising capital, and this is where automated workflows step in and streamline the entire process to ensure private equity firms manage their money efficiently.

Advances in disruptive fundraising software are giving investor relations teams the tools to map investor preferences, maximize opportunities and track progress, communication and reporting. For funds conducting fundraising campaigns, the software effectively helps capture the lead pipeline, which not only helps to execute the fundraising cycle in a systematic manner with a few simple steps on a single portal, but also increases the speed of the fundraising cycle .

Create better processes for everyone

The fundraising process includes not only presenting the fund’s own past track record (eg, net IRR, TVPI, DPI, etc.) but also distinguishing it from competing funds in the same space. Such calculations need to not only be accurate, but also need to be done at multiple levels—for example, at the industry level, investment level, or fund level. By using software that provides industry-leading data and analytics capabilities, PEs can not only generate such reports, but also upgrade fund operations and improve compliance, regulatory reporting and communication.

PE/VC fundraising is often a communication-intensive process that involves a lot of human interaction. While subjectivity determines the process, the ability to present data objectively can help everyone in the process. Technology can really help communicate, collaborate, and capture data digitally, even when larger, multiple teams are involved in the process. Tracking co-investor preferences and providing investors with the right opportunities at the right time is something only technology can help.

By 2024, the volume of data created by PE companies is expected to reach 148 zettabytes, which is extremely difficult to process and analyze with current traditional specifications alone. The call to incorporate advanced technology is not only a need but a compulsion. Private equity firms reluctant to digitally transform can quickly find themselves in a situation where it is difficult to raise capital and meet compliance requirements from internal and external stakeholders. The way forward lies in leveraging digital technologies as part of an overarching strategy, rather than choosing tactical investments to address operational challenges. Since acceptance will benefit not only the private equity industry but the economy as a whole, it looks like private equity funds will continue to acquire companies in 2022 and beyond.



The views expressed above are the author’s own.

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