When a private equity or venture capital firm manages multiple portfolio companies at the same time, it is a fairly difficult task to manage, evaluate, and group different portfolio companies.
Private equity and venture capital firms need to manage multiple portfolio companies with limited resources and ineffective project prioritization.
There can be hundreds of portfolio companies a large organization acquires and manages at the same time, involving high volumes of data.
Private equity firms need to make crucial business decisions regarding the companies that are to be acquired and ways to improve the performance of these companies.
Private equity firms also need to decide if the acquired firms are ready to be taken public.
The exchange of information between the private equity firms and the portfolio companies can take up to months.
This period can be too long for private equity or venture capital firms, where data and speed are the key drivers.
Here are the reasons why private equity and venture capital firms need portfolio monitoring solutions.
The Key Areas of Concern While Doing Portfolio Monitoring
The data sources are with the portfolio companies, where the staff collects the data from the various points of sale, web analytics, customer relationship management tools, etc.
The system access to this data is confidential, and the portfolio company does not share it with the private equity firm.
The transfer of data from the portfolio company to the private equity company happens manually, which is usually delayed, erroneous, and incomplete.
Along with getting timely access to accurate and complete data from the portfolio companies, the private equity firms face other challenges too.
- Private equity firms have multiple portfolio companies, and getting the data from all these companies to one central platform is a tough task. This data includes information on supply chain, financial, human resources, sales and marketing, technology, etc. Unless the private equity firm can get all this data in one place, it cannot accurately assess where it stands.
- Several private equity companies fail to understand the volume of systems they need to gather data from, which is the basic requirement to move ahead with data procurement.
- Further, private equity companies are unable to obtain the accurate data that lies with the portfolio companies. It slows down the decision-making process for the firm.
- Without real-time accurate data, private equity firms cannot take their decision-making to an advanced level.
- Most private equity firms are still dependent on the old-fashioned, time-taking ways of data gathering. Due to this, by the time the firm can analyze the data, it is already redundant.
- When data is input manually, it is highly prone to errors and cannot be considered reliable.
- The quality of the screening process for potential targets lacks efficiency due to the difficulties the private equity firm has to face while accessing internal benchmarks and other forms of data from the portfolio firms.
- Many private equity firms do not have the required performance information and process to analyze the internal data of the several companies in the industry they are interested in.
- During a deal orientation, the private equity firm may lag behind well-sourced competitors having faster and more accurate access to data.
- The private equity firm and the portfolio company need to implement positive growth strategies and distribute the resources to capture a larger number of opportunities.
- Since the volume of information can expand quickly, private equity firms need to enhance their portfolio oversight.
- Private equity firms can determine the value proposition and get a competitive edge in the market by using the data from the selling company.
- Gathering data from the portfolio companies is not enough. Private equity firms need to analyze this data to get insights that would help in prioritizing opportunities and creating value.
- Firms find it difficult to stay aligned with their goals during the transition from signing the deal to carrying out ground-level operations. Firms fail to track the parameters that fall beyond the scope of data and analytics.
Assessing the performance of a private equity portfolio requires some unique considerations and the calculations and benchmarking methodologies are different.
Expert automated data services can help private equity and venture capital firms prioritize capital deployment where it is most required. Firms can give accurate valuation projections and make more informed decisions while portfolio companies can improve their operations.