“Providing a white-glove service to our investors is about giving them the information they need, and be ‘best in class’ while we do it. We are embedding this approach in our internal portfolio management processes, and making sure we are only asking our own people to do things once.”

Looking Ahead:

• Going forward, as more winning companies and funds are found, will these regions continue to dominate this clearly profitable marketplace, or will more developing regions be able to capture these gains as well?
• Will such follow-on strategies continue to be profitable, or will increased competition lead to riskier and lower performing investments?
• Could their performance be overshadowed by the continued trust in more conventional investment areas such as Buyout?

Private equity and venture fund managers face an increasing barrage of detailed and probing questions daily. Examples:

• “What is the exposure of your portfolio to a downturn in the transportation sector?”
• “How many of your companies have published environmental sustainability plans?”
• “Can you document how you arrived at that valuation?”

The source of this inquisition? Current investors, prospective new funders, and, sometimes, government regulators. In other words, people whose questions must be answered. Which is why VC and PE managers are spending ever more time on scavenger hunts through folders of spreadsheets, PDFs, and email chains.

And if you’re thinking there can’t help but be a better way, there is. Cloud-based portfolio monitoring platforms can now gather, analyze, and report the financial and performance data from every company in a VC or PE firm’s portfolio. Users of these systems extoll their time savings, error reduction and risk-management improvements. And, not least, such platforms make it much easier to respond to investor questions, due diligence reviews, and regulatory inquiries.

Here’s what these groups are asking for most, and where a portfolio monitoring solution can help firms give it to them:

Cobalt Market Data Chart of the Month

Pooled Distributions/Contributions of Distressed Credit Funds from 2005 to 2019

This chart emphasizes the popularity of distressed credit funds during the 2008 recession, and how this run-up was followed by an immediate correction in Q1 of 2009. After the correction, contributions were relatively stable for the following decade, but did exhibit periods of volatility such as that seen in late 2015.

Cobalt Market Data Chart of the Month

NAVs and Dry Powder in the 2010’s

This chart indicates that from 2012 to 2018, in the recovery following the 2008 recession, dry powder and NAVs had seen a fairly parallel growth. However, dry powder plateaued at the end of 2018 and remained flat throughout 2019. Meanwhile, NAVs have continued to climb.

While deploying new technology will always require a level of effort and work, there are some key steps you can take to make an implementation as quick and painless as possible.

1. Designate a Project Manager/Champion who will get it done. Implementing software that will change the day-to-day flow and rhythm of your company can involve organizing a lot of data and coordinating a bunch of moving parts. By appointing a project manager who dedicates a certain amount of their time to keep the implementation on track from your side, you’ll ensure nothing falls through the cracks.And remember: we aren’t talking about a power-user here. That’s a different concept requiring a level of complexity you should never need in technology designed to make your job easier.

2. Outline Tangible Goals that go beyond dotting the i’s and crossing the t’s. Oftentimes, completing an implementation can feel anticlimactic because a clear desired result wasn’t outlined at the start of the process. By setting specific goals like: “80% of investor reporting will be created and delivered through the software this quarter” or: “all portfolio company data for year-end will be reported through the new online platform”, you’ll have measurable goals and distinct ways to tell if your implementation was a success or a failure.

3. Set a Realistic and Firm Timeline for your software implementation. While you’re going to want to see value from your new technology as soon as possible, make sure you assess the current state of your data before signing off on a timeline. It’s not uncommon for implementations to fall behind or fall apart because a firm did not realize how disorganized and disparate their data was. Informed decisions and deadlines always work out better in the long run.

4. Drive Internal Adoption by using the new technology for both internal and external needs. For example, you want to be able to create reports for both internal meetings and external needs, like LP requests or fundraising. Internal adoption is key for continued success with any given platform, but expect some resistance up front. Operational changes take time and require reinforcement.

Tech adoption is becoming critical to many firms’ success as they seek to automate processes around portfolio company data collection and reporting. Cobalt’s Implementation and Support teams are here to help your firm get the ball rolling. Get in touch with us to get started.

In the age of automation, it’s inevitable that private market firms of all sizes will have to implement new technology in order to keep up with the market. Many firms have a reputation of being hesitant to adopt new technology internally: most of us are reliant on Excel, so the idea of moving out of it can create panic. In reality, though, new technology doesn’t need to replace your current process; rather, the right solution should enhance it, and lighten your workload.

Whatever your technology strategy, it’s the implementations that feel tough, even though the payoff at the end is huge. But what’s real and what’s just fear-inducing industry rumor?

Read on as we break down four common misconceptions about private equity tech implementations, and then four key factors to getting it right.

Myth #1: A new PE tech solution is going to drain my IT department.

Reality check: You do not necessarily need to commit a lot of IT resources to implementing a new solution; many good ones provide support to complement your own capabilities.

The trick is to be thoughtful about your selection and involve a small team at the start of the implementation process, and make sure they are held accountable for a successful implementation and adoption process.

Myth #2: New PE tech means I need to warehouse our data.

Reality check: Most firms don’t need a data warehouse to store all the data from their CRM, portfolio companies, and accounting. With that said, once you get to a certain size, dealing with multiple asset classes (i.e. Real Estate + Credit + Hedge + Private Equity), you may hit a tipping point where it might make sense to invest in data warehousing.

Myth #3: The cost of new PE tech is astronomical.

Reality check: Cost is relative, and an incremental change can often feel larger than it actually is. If you’re looking at investing in a new technology suite, and that investment represents 2x the current spend, you need to look at what you are currently spending. Is it just Quickbooks and Excel? Or something more? Remember that when you consider headcount savings, economies of scale often begin to prove out as you achieve higher AUM-per-full-time-employee.

Myth #4: I’ll buy a shiny new tool, and it’ll fall apart immediately.

Reality check: You invest in the tool, but you still need to invest time in considering how data flows through your organization, and how data processes should evolve.

Hint: The answer should not be: “let’s copy paste from Excel into the new system.” Be thoughtful on how things should change as you implement a new system and think about how to empower your organization to fuel efficiency.

While deploying new technology will always require a level of effort and work, there are some key steps you can take to make an implementation as quick and painless as possible.

Read: How to get a Tech Implementation Right

If you are focused on producing and (constantly) updating forecasts for your firm right now, you are not alone. In the midst of uncertainty driven by the coronavirus, many private equity and venture capital firms are more closely monitoring portfolio health, asking:

• Which of our portfolio companies need cash, NOW?
• Which ones can stand on their own two feet longer?
• Can / should we reallocate resources to support our portfolio companies’ health?

Forecasting isn’t new to the private markets, and during a market dislocation, this shorter-term financial watch and responsive reallocation strategy is the smartest move.

“Good forecasting hygiene supports the stability play that, in theory, every private equity firm should have in their strategic playbook,” says Cobalt CEO Jason Weinstein. “With COVID-19, we’ve seen many firms issue an entirely new set of scenarios to account for updated definitions of ‘bad, worse, and worst.’”

So what should your forecasting report include? Let’s take a look.

Anatomy of a Good Private Equity Forecast

Most forecasting reports account for some combination of the following metrics:

• Cash flows: How often do you update your cash flow and income statements to stay on top of the numbers?
• Employee growth: How will your portfolio company’s workforce grow (or shrink) in the next 30-180 days?
• ESG metrics: What will your cost of energy be in the next month? What about water use? Impact to your portfolio company’s surrounding communities in any shift?
• Additional investments and/or alternative capital: Where do you anticipate making additional investments? Do you plan on issuing debt or applying a new structure to your investment?

As with everything, forecasting is not a “one-and-done” process. Best practice dictates that they be updated on a regular basis, to account for material changes to any of these metrics.

A More Efficient Way to Forecast

Eight Signs You’ve Outgrown Excel for Portfolio Monitoring

Excel has traditionally been an easy (and natural) way to track portfolio companies, particularly when your fund was smaller, and perhaps less complex.

As your fund grows, however, you are likely installing technology to manage back-office tasks (i.e. accounting software for finance and a CRM system for the deal team). But none of that manages your “crown-jewel” front-office information: the data showing your portfolio company performance metrics and valuations.

So how do you know it’s time to upgrade from Excel to a proper portfolio monitoring platform? Here are eight tell-tale signs that it’s time to do just that.

1. It takes longer than five minutes to find something.

“Yes, I know the LP is on the phone. That number is on one of these tabs. Or possibly on the other spreadsheet. Can you stall while I look.”

2. You want to evaluate your entire portfolio for risk.

“Don’t a few of our companies have factories where that war is about to escalate? Have we scenarioed how that could affect our results?”

3. You have to restart a meeting when you realize people are looking at different versions of a spreadsheet.

“It says here inventory is down to a 10-day supply…Wait, what update? I’m reading version 3.2, when was it changed?”

4. You’re worried about an upcoming audit.

“I’m sure that valuation was based on the revenue projection they gave us. You know, the one before they lowered it. Don’t we have a record of the old numbers somewhere?”

5. Only one person knows how your ‘master spreadsheet’ works.

“A three-week honeymoon? How will we get the reports out?”

6. Your investor reports look like they were made in Excel.

“What do you mean BlackRock doesn’t have grid lines on its reports?”

7. It takes weeks of chasing to get all the information for a quarterly report.

“I don’t care how good that oil-services business looks. No new deals if we can’t keep track of the ones we’ve done already. Get me those numbers now.”

8. Everyone knows you need a portfolio monitoring system, but you think it would be too difficult to set up.

“I’m sorry, but we just don’t have the bandwidth to accomodate a software install.”

If you’ve heard anything like the above at your firm, it’s time to check out portfolio monitoring software. Imagine being able to open your laptop, tap the name of one of your portfolio companies, and see all the information you want—up-to-date, consistent, and with all changes tracked. You’ll be able to analyze trends across the entire portfolio, identify risk, and compare each company’s performance to your investment thesis. And your LPs will notice that you answer their questions faster and send crisp, professional reports.

And about that install… Not every software package is a time-suck delivery system. Spend half a morning calling a few peers and you’ll quickly learn that some portfolio monitoring packages are surprisingly fast to install and easy to use. When you see how much time your team regains once it is freed from juggling those old-school spreadsheets, the only thing you’ll be wondering is why you stuck with Excel as long as you did.

Simplicity. Sophistication. Usability. Service.

These are the four mantras at the core of every thing we do at Cobalt. Simply put, it was time that the way we talk about and present our business actually represents those mantras—and the experience our clients enjoy on our GP platform.

So we got to work designing everything from our logo to our website to tell the story of what Cobalt really does, and why.

With that in mind, some fun facts about our new look:

1. Yes, our logo is a wave. A modern, tech-forward look at a wave. That’s because Cobalt is the tool of choice of private equity and venture capital teams navigating change across their operating environment. That change spans internal controls, LP expectations, and competitive landscapes. Cobalt helps those teams simplify, speed up, and get more effective at riding that wave, and even putting it in a box they can check. See what we did there?
2. Our color palette is advanced and fluid. We aren’t your standard financial services technology company, because we’re nimble and forward-looking. We work hard to stay at the forefront of industry changes, so you can too. That’s why we landed on an unusual color palette that serves more as a metaphor for what we do for our clients: at its foundation, it is dependable and deep, but we reserve the ability to tailor it to our clients’ needs, grab attention, or highlight the most important information.
3. We feature a lot of people. Gone are the illustrated, mannequin-esque images, and conceptual “icons.” Instead, we’ve placed people front and center in our new visual identity. As we mentioned above, service is our top priority. We are available to our clients any time they need, to troubleshoot or find a new path in finding and assessing the data they need. Person to person. Front and center.

The new look is still a work in progress: important things like our library of white papers, cheat sheets, and industry observations will continue to be added to our Resources section as we continue to update them. Check back regularly for old favorites, and new ones.

In the meantime, we’d love to know your thoughts about our new look, or answer any questions you have. Feel free to reach out to us directly, and a team member will get back to you within one business day: info@cobaltgp.com.