Following their panel discussions at Real Deals’ Tech Innovation Conference 2021, we chat to Suzanne Pike, Partner and Head of Origination, and Duncan Ramsay, Partner in the Commercial Team, to find out more about how they think technology is impacting private equity operations and value in portfolio companies.
Suzanne Pike joined the opening panel discussion on the digitization of the private equity industry and how it will be transformed in the future.
Q: How has tech changed processes in private equity, and at ECI, over the last few years?
It’s hard to think of a single aspect of our working processes where tech isn’t wholly integrated into what we do. We use machine learning to help with origination, Salesforce to manage the pipeline, and we have live dashboards giving us visibility of everything from pipeline to portfolio management.
AI has probably been one of the biggest changes in private equity over the last few years. ECI developed its own proprietary in-house tool, Amplifind™, that helps us not only with sourcing and prioritizing opportunities, but we also use it to help our portfolio companies with their acquisition strategies.
Q: How critical do you think AI is for the future of private equity?
On the one hand there is a lot of talk about AI in private equity, but often the technology falls short. It’s why, after reviewing about 30 external providers we decided to build our own in-house tool. Off the shelf solutions can be quite generic, so the more focused you are an investor, the more likely they are to fail the quality test.
The success of machine learning will depend on the data. Our tool is trained using past ECI deal assessments, so we know we can rely on the quality of those assessments and we have years and years of data we can feed into it.
Fundamentally though, AI helps us to free up more of our time to focus on the creative aspects of our roles, and on building relationships, but it is still those relationships which will make the difference as to whether we do a deal or not.
Q: Has Covid-19 accelerated the use of tech for collaboration?
ECI is very future focused as a firm, so we’d already begun our transition to the cloud six years ago, and were already embracing collaborative workflow tools. The use of that tech has definitely accelerated collaboration in that it keeps us connected, helps to join the dots, and frees us up from more manual tasks so we can focus on the value-add aspects of our roles. But, collaboration is firmly in our DNA at ECI, technology is helping that but the tools can’t create it if it isn’t there in the first place.
Q: Tech implementation projects often fail – how do you avoid that at ECI?
There are a few governing principles we tend to adhere to. The first sounds obvious, but is actually where projects often fail. You need to start with clear business objectives and work back from there. It has to be about the business not about the tech. The second is less is more. User adoption and engagement is what drives success, so make the user experience simple. The third is that there is a single source of truth for each data set – for example, for the pipeline that’s Salesforce – if it isn’t in Salesforce, it didn’t happen. That means we have great data integrity which is fundamental. And then lastly, the most important one for us, is configuration not code. It can be tempting to create bespoke features, but the beauty of cloud-based software is that it’s incredibly flexible, and ensuring you don’t have to rely on a developer and can integrate more easily with the rest of the tech stack, means you have a much more scalable platform.
Duncan Ramsay joined the closing panel discussion on tech integration towards the end of the cycle, assessing how tech improvements can support value creation across the portfolio.
Q: How does improvement in technology create value in portfolio companies?
The answer varies massively depending on the business model, but the first step is often investing in the tech machine itself in order to get set up for rapid, high quality delivery which then means the organization can focus on delivering value.
For example, portfolio company Avantia has invested significantly in its underlying machine learning platform and is now fundamentally a technology business that focuses on non-standard home insurance business, rather than a home insurance provider.
Similarly, Auction Technology Group went through considerable digital transformation during our investment, and that underlying tech machine allowed them to rapidly deliver commercial value and drive customer conversion. That scalability was fundamental to its growth, and the business floated in February, and is now worth c£.800m.
Q: Do you use any technology tools across the portfolio?
Typically, we would try to keep any tech investment that can make a difference to the portfolio company in the portfolio company itself, so that it can be carried with it through its life.
However, the ECI Commercial Team does leverage a number of tools to support its portfolio, particularly around data and analytics. We use the likes of Alteryx or PowerBi to leverage data to help portfolio companies drive commercial insight.
Technology as a broad term will usually be a key part of value creation over the course of our partnership, but the needs of each company are hugely varied. So, we aren’t prescriptive with a tech playbook, but assess the challenge of opportunity of each investment, and then use our experience to work together on the best solution.
Q: Has Covid-19 changed how you interact with portfolio companies?
Collaboration has always been fundamental to the way we work with our management teams, so there is nothing fundamentally new about how we’re operating, apart from we’re doing it from home. However, the ease of being able to jump on a Teams Call and collaborate more effectively, has created more opportunities to engage with our management teams, which I think will continue into the future as companies adopt a hybrid working model.