CRM Systems and Private Equity Deal Sourcing




Preqin and LexisNexis Enterprise Solutions just released a report on “CRM Systems and Private Equity Deal Sourcing”, based on a survey of 63 private equity funds.


They report that 84% of respondents claim to source over 20% of their opportunities through proprietary deal flow. Based on our research, I think that these respondents are taking a very liberal view of what constitutes “proprietary deal flow”.


The study also found that, “80% of participants stated that they already use a CRM system for relationship management, or would use it for this purpose if they were to invest in one.” I suspect that this is a very liberal definition of “CRM system”. EquityTouch found in a 2009 survey of 61 PE funds that 37% were using no formal CRM application; instead, they were typically using only Microsoft Outlook and Excel. I don’t consider those CRM.  The most popular CRM tools were: (17%); Act (15%); Saleslogix (7%); and Microsoft Access (7%). We should highlight another provider, Gust (formerly Angelsoft), which is by far the leading deal-tracking application for the angel network community, and also has over 100 VC clients. 


Given the congenital weakness of institutional investors in inputting and updating information, we think you should automate as much as possible the process. We have identified five ways in which investors can systematically add data to their CRM systems:

· Employee networks. One of the most powerful ways to get data within the CRM system is to use a relationship capital tracking tool, such as ContactNet’s Enterprise Relationship Management platform. These tools automatically spider through the emails, IMs, and other tools of a firm’s employees, in order to identify with which people the firm has relationships. Mike Ahearn, human resource partner at Boston-based VC firm Greylock Partners, reports that he finds these tools are a good way to find IT people who aren't actively searching for work and may not otherwise come up on his radar screen.

· Business cards. We recommend using a card scanning tool such as those sold by Cardscan, IRIS, Neat, or Presto to incorporate this data into your CRM system.

· Data from email and files. A number of vendors sell tools which automatically suck in data from email signature files, web pages, etc., into your CRM system. This speeds up data entry by obviating retyping. Vendors include eGrabber, Gwabbit, GrabText, and Broadlook.

· The cloud. We recommend setting up an automatic synchronization with some of the major public contact databases (LinkedIn, Spoke, Plaxo), which allows you to get current contact information.

· From the company directly, e.g., via a web-based application such as Angelsoft.


Most important is culture.  I know one PE fund where the manager has said that he evaluates the contributions of his team based on their activity in the CRM system.  If there’s no data in the CRM, that implies they’ve done no work, which implies no bonus.  Use of the CRM system at his firm is, understandably, very high. 


(Graphic courtesy of Gauravonomics)

Posted By David Teten Comments Off
On September 22nd, 2011

Disruptive Companies in Asset Management


I recently attended an idea dinner on "Disruptive Companies in the Asset Management Industry". 


The most attractive industries to disrupt are highly profitable ones, and asset management is traditionally a highly profitable industry.  IMHO, the most successful disrupters in this area to date have been Vanguard (who popularized index funds) and the ETF industry.  We thought it would be interesting to brainstorm about what are the next great ideas and companies that will/can disrupt this sector, based on the ideas on Clayton Christensen's "Innovator's Dilemma".  The dinner included a cross-section of senior finance executives and experienced tech entrepreneurs.  I've attached below the notes from the dinner in slideshow format. 


For this who don't flip through the slideshow, here are the highlights:


What Do Investors Value? (What Jobs Does the Investor Want Done?)


.Investment Team Stability

.Relationships with other investors and investment teams


.Capital preservation

.Job security (of the investor)

.Tax minimization

.Social welfare

.Exposure to target sector (e.g. China, commodities)



Examples of Disruptive Innovation in Asset Management

.Index funds


.Structured products which minimize downside

.Investing in new asset classes: domain names (, equity-like student loan instruments (MyRichUncle), litigation (Law Finance), patents (RPX), etc.

.Credit Default Swaps

.Crowdsourced financing: Indiegogo/Kiva/Kickstarter

.Discount Brokerages

.Expert Networks


Examples of Sustaining Innovation in Asset Management

.Quant hedge funds

.Private company markets

.Motif Investing

-Allows exposure to investment themes (eg, "I want to invest in African oil expansion"


New Asset Classes in Which Some Are Investing

.Domain Names


.Human Equity



.Virtual Currencies

-Facebook credits

-Frequent flyer miles

-Carbon Credits

Posted By David Teten Comments Off
On August 29th, 2011

Notes from PluggedIn Ventures Real Time Data, Content, & Analytics Roundtable


PluggedIn Ventures


Gregory Sanzone, an intern at, took details notes on today's Real Time Data, Content, & Analytics Roundtable, hosted by PluggedIn Ventures.


Real Time Data


Real time data is valuable in two ways, mainly. The first is that it crudely allows content providers to recognize spikes in popularity of pieces of content, so they can "double down" and mash on the proverbial "promote this content" button in order to drive engagement and uniques on their sites.

The second way in which real time data is valuable is in the context of historical data. A rich historical data set allows content providers to establish significant correlations between behaviors and outcomes. Websites can then use real time data to identify, segment, and serve consumers in real time, based on how their behavior correlates to historical data.


Algorithmic Content Curation


There was consensus among the panel that strictly algorithmic content curation lacks the je ne sais quoi of human discretion. Computational editorial methods are necessary in order to deal with the massive scale of the Internet, but ultimately, human intuition and sensibility must supervise the editorial/curatorial process.


Complete Discussion Notes:


Discussion prompt 1: "Only human curation can deliver real time content that is relevant to people."


Subsequent discussion:


Data in consumer space is noisy. There is a need for tools that filter and remix and use data in order to take informed actions.


The sheer scale of the web's content and user base makes manual curation difficult. One needs computers to understand users and rationalize content strategy/decisions


To know if curation is working, one needs performance metrics. Metrics allow for pattern recognition and machine learning, which allow for automation.


Again, human curation is super difficult when dealing with something as massively scaled as the internet.


Dan Patterson, ABC News Radio: In his experience, computers help curators get really close to the content sweet spot, but there is a need for human discretion to truly optimize. Human/computer-curated radio out performs strictly computer-curated radio.


Machines with humans to override them when necessary - "humans vs. cyborgs"


Jon Steinberg: some editor offices look like trading floors, with six to seven editors looking at many data displays, looking to pick up on lower-level/subtle trends. They utilize algorithmic-based curation methods.


David Teten: Trend line is pointing toward automation.


Steinberg: it takes a computer to notice in an efficient manner when content in the background gets lots of (social) traffic. Example of the frowning flower girl @ the Royal Wedding. First, how do you recognize the genesis of such a trend as it forms? Then how do you best capitalize it, push it further?


You can't curate until you aggregate.


There is an algorithmic limit to natural language processing. The promises of the technology have been slow to materialize, and some of the challenges are proving to be intractable.

Big data and automation help to define performance goals and match them to actual performance. Curation is an optimization problem - what gets deployed, in which order, in which rank? These are optimization problems.


Andrew Montalenti: It's not a strictly binary argument. To get the best performance, it's about how humans can leverage digital tools. Cyborg.


"Filter bubble." Is all this automation creating personalized content echo chambers? Cf. Eli Pariser. 


Sociocast: Predictive, real time data. They process 30m+ user events on a daily basis. All this data allows for discovery of significant correlations. Behavior of humans is redundant. They use their insights to behaviorally target ad serving.


Breadcrumb path of data. Calculate quick decisions to create better user experiences. Ability to experiment and discover what data is good to use, when to use it. All in this space of content provision and digital advertising are trying to optimize to create better experiences for people.


Scripting languages and data stores today did not exist even a few years ago. Technical feasibility of this domain is new and still expanding.


Search data is great for understanding and correlating user actions to user intents. But search doesn't generate intent. Data collection and user tracking allows websites and 3rd parties to organize and classify users, content, ads, etc. and answer basic questions such as (1)how'd a user arrive at a page?; (2) what did they do while on the page?; (3) where and when did they leave the page/site? Data, metadata, etc.. reveal patterns. Once classifications and trends are understood and modeled, one can use real time data to recognize correlative behavior and exploit it.


Different kinds of data -> real time, panel data and survey data.


David Brinker, The Daily: Different patterns of news consumption (e.g. some read in the morning, some in the evening). Within apps you can't get all this data [my note: the issue of devices, particularly in the context of Big Data and behavioral, demographic, and psychographic segmentation, is a really interesting and underexplored topic, deserving of its own panel discussion!] For the Daily's publication schedule, real time data is not very relevant. Furthermore, their advertising is brand-based, they want to create an intimate experience between themselves, their users, and their advertisers. It's not direct response.


Dan Patterson, ABC News Radio: branding and relevant content delivery to older, aging people -> still looking for an intimate connection. Advertisers want people to have intimate experience with ad, brand, product. Dan's philosophy is that if you take care of your users, advertisers will follow.


Someone commented that most AM radio ads are direct response. Advertisers want consumers to call/act immediately


[My comment regarding David and Dan's comments: every content provider and their mothers are trying to create these personalized, intimate experiences. iPad apps and radio are interesting in that they try to do so with limited access to data, particularly real time data. Neither panel members offered what kind of data they use to inform editorial decisions.]


Tony Haile, Chartbeat: Glenn Beck monitors two Chartbeat dashboards that display his website's stats, as he presents his radio show. Dynamically curates his radio content in response to the real time web data.


Andrew, Parsely: almost 50% of news consumers get their news from the web. He believes there is no distinction between print and web audiences anymore [?]


Real time data allows editors to respond to immediate goings-on, not past goings on. Example of Nick Denton, identifying a spike and doubling down on that piece of content.


Feeding winners and starving losers. Throwing gasoline on a fire to turn it into a conflagration. Exploiting ephemeral opportunities to the maximum.


"Feed fatigue". We live in a digital world of fleeting content relevance - if a publisher misses an opportunity, it could be gone forever. No second chances, can't revisit an event or meme that was hot three days ago. Need to make sure that deployment happens at the right time.


The key to getting someone to do something is timing and context. Marketing 101. The value of real time, then, is that it enables one to recognize when a consumer is vulnerable to influence, as he is vulnerable to influence. Recognize when someone is in your wheelhouse, and knowing what to do to optimally exploit him.


With respect to engagement, there are value tiers for different consumer news products. E.g., Twitter is temporal, noisy, and therefore discounted. Magazines and newspapers of record are highly curated, edited, and thoroughly substantive.


Lawyer: asked about FCC Do Not Track regulations.


It will harm consumers and businesses. The internet allows for co-created value. Consumers give information to companies, who use it to create more enjoyable, personalized products and services for consumers.


Someone else says that the legislation would mainly, negatively affect the collection of cross-session data, which is not very valuable or informative, anyway.


.Standard hot air and buzz words. "Data economy"."the notion of privacy is changing"."user opt-out"


.Discussion shifts to the topic of making analytics products actionable for their users:


User experience of data products is hugely important. Key performance indicators and other such visualization/communication methods that make data accessible and digestible. Need to create affordances as to what to do with data.


Automation is the future. Make more money at less cost.


.Discussion shifts to macro-effects of shift to automation:


David: creative destruction and the rate thereof is dramatically disrupting legacy economies, labor markets, etc.


To close out the discussion, each panel member suggested one technology/trend that will die out soon.  Answers included: 3rd party data, niche social networks, most of the tablets slated for release, dumb phones, haphazard social publishing, standard display ads for brands, lots of seed startups, AOL, traditional display networks, and irrelevant TV adds.

Posted By David Teten Comments Off
On August 3rd, 2011

Conference Notes on Sourcing Deal Flow & Developing New Business for Private Equity


I enjoyed participating in last week's Capital Roundtable Private Equity Masterclass on "Best Practices for Sourcing Quality Deal Flow & Developing New Business" (May 26th, 2011). Our star intern Adam Kalamchi took detailed notes, below.

View more presentations


Chairman's Keynote: How to Win -The Five S's of Successful Deal Sourcing

Richard J. Fitzsimmons, High Road Capital Partners

(Presentation included above)


Most funds have ~7 deals total, or about two deals per year. Finding the right deal can make or break that particular fund.

Sources: identify the right places out of innumerable sources

Of 5 million companies registered with the IRS, 4 million are S corp. pass throughs (individual owners); 1 million C corp (shareholders)

They prefer deals represented by intermediaries because it signals the owner is willing to sell. Otherwise, private owners tend to have unrealistic expectations or an arbitrary sale price expectation.


Banks, brokers, Advisors
They have the confidence and trust of the business owner

Deal aggregation websites
Increasing in popularity, trying to increase market efficiency.
He thinks it's a tool, but will not displace traditional M&A
PE-Nexus, AxialMarket, CapitalSphere, DealMarket, MergerID, etc.

Fundless sponsors
Good at finding unusual opportunities at good prices

Estimated 100 - 200 total entities
Friends & family - basic networking

Strategies: how do you generate returns
He doesn't believe you can build sustainable proprietary deal flow; they believe in pro-active, outbound deal sourcing effort

After you've applied all of your filters, surprisingly hard to find under-priced assets, especially when intermediated

Signature: what makes you unique and how do you get people to recognize that?
Must build and promote your reputation / expertise

Flow is a function of reputation and share of mind in target market

Signature and messaging will vary by market and audience, but must be internally consistent

Spreading the word: gain awareness of your firm; define and spread your message
Email is quite effective at keeping top of mind. Build and maintain large email database.

Phone is slower and less scalable, but good quality and intimacy

Industry events have good value for face time in such a personal business

LinkedIn is increasingly effective for companies in addition to individuals

Statistics: must quantitatively measure your deal flow process in order to improve
Use statistics to test anecdotal hunches

Benchmark yourself to overall market activity

Panel 1: Creating The Right Deal Flow -- Creating & Managing Sustainable, Replicable Strategies


Richard P. Prestegaard, High Road Capital Partners


Robert P. Bennett, GroundSwell Capital LLC
David C. Glickman, Resilience Capital Partners LLC
Luke Johnson, Platinum Equity LLC
Robert B. Landis, The Riverside Company
Robert E. Michalik, Kinderhook Industries LLC


Brokers tend to show deals to the people that are top of mind / they have seen recently, so staying visible and in touch is important
Being responsive to brokers respects their time, especially when you are not interested in a deal so they can move on to a higher potential buyer

Question: How are you organized? How do you align incentives?
Larger funds tend to have industry-specialized sourcing, but less so at the smaller funds due to lack of scale
Riverside shares deal-based compensation, so that the sourcing team works together and it's not zero sum in terms of hoarding contacts

Question: Where do the panelists want to improve their current sourcing?
Social media

Having flexible, searchable databases accessible on mobile devices
Move from partner- or people-oriented function to more institutionalized, systematic, and scalable

Question: How do you handle in-bound emails?
Platinum has a single individual who receives and sorts through inbounds, uses discretion if and how to react
Resilience responds every briefly to all credible emails to maintain their brand.

Question: What portion of your deal flow is proprietary?
Panelists do not believe there is sustainable truly proprietary flow (though I think they are defining this too narrowly as sales with only 1 buyer)
Platinum looks at as direct- (20%) and indirect-sourced (80%), not proprietary vs. non-proprietary. They are looking to improve self-creation of deals.
Riverside defines proprietary as any sale less than ~3 buyers involved
Kinderhook looks for the "broken" auctions that didn't get the right attention of the PE community

Question: What fee structure do you use for proprietary deals?
Truly proprietary deals have no fees - you are interacting directly with the seller
No negotiation on fees if there is an intermediary
Kinderhook pays 1% or a book and 2% for a phone number under the assumption that if there's a book created there are other buyers

Question: Thoughts on how to use social media to generate deal flow?
Branch Out

The feeling is that they've started, but recognize there is value they are not tapping
Some are skeptical, especially how to drive quality vs. just more quantity

Question: If you are starting a business development group, what are the top three things you should do?
Focus, don't be all things to everyone, focus on key markets

Know what your company wants so you can speak as a decision-maker and not just a broker

Panel 2: Positioning Yourself to Win - Four I-Bankers Explain How to Compete for the Good Deals


Richard J. Fitzsimmons, High Road Capital Partners


David Deutsch, David N. Deutsch & Co. LLC
Thomas P. O'Connor, Berkery Noyes & Co. LLC
John L. Tye, Edgeview Partners LLC
Harold J. Williams III, Dickinson Williams & Co. Inc.


Question: When you start a process, how many buyers do you reach out to on average? Most? Least?
Start with a hit list of several hundred strategic and financial buyers. Articulate thesis for each counterparty, then run ideas and work with clients to narrow the list. End up approaching 20-30 strategic and 50 financials.
To maximize value and sale price, wider net is better
There is a lot of un-invested capital sitting in funds and outside-in it is hard to tell the internal dynamics, so casting a wide net increases chances of a good outcome

Question: How many PE firms are in your databases?
Several thousand---- then narrow down based on objectives and focus etc.
Don't be "Just Another Middle Market Buy-out Fund (JAMMBOF)"
Opportunistic, no focus

Question: How do generalist PE funds differentiate and get in the advisers list?
Good funds pro-actively stay in touch with bankers
Understand what each bank's coverage model is. How do they prioritize and assign responsibilities? Then develop personal relationship with whoever is covering you.
Staying on the buyers' lists is based on how well you conduct yourself in the diligence processes, "beauty contest"
Banks are aware of your funding situation and your portfolio / investment thesis. More likely to attract deals if you have a good specialty / strategic thesis vs. being just opportunistic.
"Strength and length of relationship"
Show enthusiasm, ask questions, express interest directly that this is one of the deals in your sweet spot
PE funds can reach out to companies directly, but you need to manage and related personalities this carefully. Certainly has upside if the business owner through these communications develops a preference for a specific PE fund. Once the process starts officially, need to follow protocol through the bankers; it really ticks off the bankers if you interact directly with the CEO.

Question: How do PE funds differentiate in the LOI phase?
Bring substantive content and 'meat on the bone'
Everything you have done until that point builds your credibility
Show that you have fully leveraged the data room
Having unanimous buy-in from your own investment committee is important. Do not want surprises, as deal gets closer to closing, and then suddenly the investment committee reads the documents more closely and asks questions that should have been asked earlier.

Question: What is the discount you get for being the preferred buyer?
Don't really give discounts, but call the preferred buyer and tell them the terms they need to match to close the deal.

Question: Which corporate deal sources have the most effective pipelines?
Many, many approaches
Apple's lead is overly friendly and kind
Some have interns periodically call to check in
"I believe there is proprietary flow, since he's seen buyers who consistently are single-bidders."
If you are known as someone who is truly helpful, you will always get calls with an opportunity or just for advice

Teten question: What will the impact be of deal aggregating websites (Axialmarket, MergerID, PE-Nexus, PEGBASE, CapitalSphere, DealMarket, BizBuySell,) on the investment banking industry?
Tye: they are still evaluating and thinking about how to make it value-creating
Some of the others haven't seen them impact their markets
They will get calls from banks if they develop trust not to front-run processes

Panel 3: Finding Hidden Gems - Four Proprietary Deal Flow Experts Discuss How They Advise Their Clients


Richard P. Prestegaard, High Road Capital Parnters


Zubin Avari, Charter Oak Equity LP
Christopher A. Gebelein, Private Equity Growth Advisors LLC
Sven A. Kins, Cook M&A Advisory Services
Matthew S. Wells, PE-Nexus LLC


Question: When clients reach out for help, what are they asking?
PE clients don't know whom to call within corporations to discuss something like a divestiture

PE funds get busy and sometimes periodically reach out and then fail to follow up. Advisers can help by rounding out their contact list and then having a consistent cadence of following up and messaging with business owners. Many middle market firms don't have enough business development capacity.

Question: In divestitures, which comes first, the buyer or the seller?

Private Equity Growth Advisors:
Focuses on the corporate client who has the need to sell. It's very hard to just call corporations and just ask what they have for sale. These communications are largely ignored. The better approach is to try to solve the problems of corporate development people who want to grow their businesses.

It takes corporate executives a long time to decide to divest. Even once the decision is made, the business have been neglected and getting a healthy auction going are quite low. There are lots of risks that the business deteriorates during the sale process. So, there is a sense of urgency.

They try to have a 60-90 day process. Much of this is done for quarterly earnings management reasons. This can be proprietary since there is just no time to run a process.

Accounting and incentives systems drive behavior within the corporation and you must be aware of this as a buyer (e.g., the manager won't realize the loss which will affect their business unit's reporting and therefore their personal bonuses).

Question: In the above, how do you convince potential corporate seller not to engage in a full process with bankers and advisers?
Many times there is not enough time due to quarter end or the business itself will not last throughout a protracted sales process

Of course, the larger the deal, the high the chances the corporate seller does hire a banker to be able to justify price to their board

They stay close to corporate development officer to understand all of the non-price items that are important to them. This is important for getting their clients into the final bidding round.

Question: What are some issues with divestitures?
Financials (e.g., balance sheet) are not held at the business unit or asset level

Sellers may not be as sophisticated in terms of understanding how PE funds think and operate

Question: How does PE-Nexus work?
This is a technology-enabled solution to compliment the existing, traditional process

Casts a wider, more efficient net than existing channels with a more robust database and a more detailed search function

Question: Is the PE-Nexus platform for all market segments?
The platform is really for the middle market, not KKR / Goldman Sachs

Question: How does Charter Oak Equity source their deals?
They are a sponsor and they act as if they were investing their own capital

Certainty to close is critical before they take deals to the PE groups

They are also so aligned with the PE group in terms of reputation and returns that they like repeat business with the same groups

Question: How do each of the panelists get paid?
Charter Oak Equity LP
Fee at close
Part of management fee
Part of carry

Private Equity Growth Advisors LLC
Some clients pay a monthly retainer which gives PE fund credibility with corporate contacts
Success fee

Cook M&A Advisory Services
Nominal retainer
Success fee upon closing
Hope to be part of the add-on process if part of growth plan

PE-Nexus LLC
Straight subscription fee from buy-side clients
No success fee
No charge to the sell side, their currency is the data

Keynote Presentation 2: Virtual Handshake

You can download the slides at .


David Teten, CEO, Navon Partners LLC


People are increasingly online and connected, but we are still at the very early stage of social media having a material impact on how we do businesses
Our kids are the future business leaders and they carry the habits they are developing today into their future business habits
There is an incredible amount of data leaked online
Need to stay top of mind
Diverse networks have much larger value than more focused networks
Social media is a low cost way (time and money) to extend the reach of your network
Leverage multiple media formats - this increases trust. More likely you hit their preferred channel. Also allows people to do diligence ahead of time rather than a cold meet.
Online communities are great sources of free consulting services

Five next steps
Google yourself and see what people are saying about you
Be a data hound
Reduce email use: move communications to thinks like wikis that are better stores of information and less re-emailing (social text is a good corporate wiki)
Find people to meet online - zoominfo aggregates all publically available information.
Join the right clubs

Question about companies that help manage email / contacts :
rapportive - pulls in all publically available data when you email someone from gmail
xobni - gives you insight into frequency of interaction

Panel 4: Alternative Deal Resources - Four Other Advisors Discuss the Value They Add to the Process


Robert J. Fitzsimmons, High Road Capital Partners


Howard M. Berkower, McCarter & English LLP
Jake E. Lilie, Dynamic Data Inc.
Nadim Malik, Sutton Place Strategies LLC
Roland W. Tomforde, Broadgate Consultants LLC


Question: How can firms use their technology to improve deal flow?
Excel is a way of the past, everyone is using CRM now, generate reports for Monday morning meetings
Deal Dynamo
Salesforce - lower priced option
Equity Works

Social media is a great way to personalize your firm
LinkedIn, Twitter, Facebook

Question: How can firms use data to improve deal flow?
Know your market penetration, share of target market

Know the details about what is falling through the cracks - which deals did you miss and why?

90% of their effort is to understand how the buy and seller get / got connected

Question: What are other ways firms drive good deal flow, especially since some are publicity shy? Should they be shy?
Roland agrees that PE firms are shy

There are ways to create localized branding e.g., in your industry

Each opportunity must been a seen as an opportunity to underscore your key messages

Question: What is an ideal level of email traffic?
Don't wear out your welcome, but hard to pinpoint a specific number. Need to avoid people instinctively reaching for the delete key.

Posted By David Teten Comments Off
On June 1st, 2011