Look to VC for the future of fund operations

Private fund firms can be conservative when it comes to taking on new technology, but they could learn a thing or two from their venture capitalist peers.

Private capital has helped build some of the world’s most innovative companies, but the industry itself is not renowned for its adoption of cutting-edge tech.

Staff remain reliant on traditional tools, and Excel spreadsheets are the back-office mainstay, despite their many shortcomings. Around two-thirds of delegates polled at this year’s pfm CFOs and CCOs Forum in New York said they were heavily reliant on Excel for most of their tasks, with one commenting that they were not sure what alternatives were available.

Barriers to automation cited by chief financial officers include cost, skepticism that a suitable solution exists and the risk of implementing an untried system.

Venture a suggestion

Help may be at hand from private equity’s more disruptive relative: venture capital. Research from New York-based venture firm HOF Capital suggests private fund front-, middle- and back-offices will be able to learn a thing or two from the venture capital industry’s current foray into computerization. Firms included in the study included San Francisco-based Ironstone Group, Rightside Capital and Venture Science.

The research, which will be followed up by a much larger scale survey of VC firms’ current technology systems, was conducted to coincide with the launch of PEVCTech.com, an online community where private equity and venture capital investors, technology experts and managers can discuss developing technology and how to deploy it.

Luckily for CFOs, it seems two particularly onerous tasks – investor reporting and valuations – have great potential for automation. Tracking down documents, preparing reports and pulling data from different sources are among the biggest tasks in these processes, but the research found a number of VC funds have successfully deployed solutions to do the job for them. The tools scrape data from across the portfolio, translate it into performance or valuation metrics and store it in a central repository, ready to be shared with a recipient in the required format. The tools remove the repetitive and time-consuming task of manually collecting and inputting. The tools used include iLEVEL, iVAL, and Qval. Similar solutions have been used for LP reporting.

Different requirements from investor to investor add time and stress to the process at the moment, but the tools used for valuations can produce documents containing data in any requested format. The information provided is also much more up to date than traditional sources – data scrapes can be run at the click of a button. And as the data is stored on the cloud it can be accessed from anywhere and from any device – the CFO does not have to be at his or her desk to complete the task.

CFOs that are involved in investor relations – an area around one-quarter want to spend more time on according to an EY survey – can also take advantage of tools that will streamline communication efforts.

Private fund firms are notoriously slow to adapt to and adopt new technology systems, with fear of the unknown being a major barrier to doing so. But they may be able to make their lives easier in the future by adopting the tools that successfully pass the tests given to them by their venture capital peers.