By Eyal Cohen, DataRails Co-Founder and CPO
In recent years, the business world has undergone a significant digital transformation, including the introduction of massive systems such as ERP, CRM and HCM. In the financial market, however, the digital revolution has only just begun.
We have seen more and more financial institutions moving to the cloud and migrating to web and SaaS solutions. Banks, insurance companies and other financial companies are all trying to improve their competitive advantage using technology so they can stay in the game. In a nod to this trend, all software vendors have aligned and introduced relevant SaaS solutions, while even the gigantic ERP vendors, SAP and Oracle have started migrating their customers to the their clouds, following Intuit and other financial leaders.
Looking closely at the financial industry, however, and specifically the private equity field, reveals a totally different picture. Entering a PE or a VC office feels like journeying into a time machine. While the pipeline, accounting and CRM processes are handled by modern solutions, the majority of these firms still use Microsoft Excel as their main system for portfolio management. Those who have moved to enterprise solutions have had to settle for this old, outdated technology and UI.
Portfolio management challenges
Some might ask what makes the PE and VC field different from the rest of the financial market, and the answer is simple—and maybe even too simple:
PE and VC portfolios contain real companies, rather than stocks or other securities.
Investors must receive periodic reporting from portfolio companies, but dealing with real company data is like facing mayhem.
Portfolio data collection for PEs and VCs involves gathering dozens, or even hundreds, of spreadsheets from different companies—all with different formats, terms and currencies. To extract any insights requires manually consolidating that data.
Since these data challenges cannot realistically be handled by human beings, nor by any of the current software solutions, the GPs must ask for less information, in longer time frames. This is why PEs and VCs usually collect one simple spreadsheet from each portfolio company each quarter.
Portfolio management solutions
Several solutions attempt to address these issues:
1. Standardizing the reports
The obvious solution to this challenge is requiring all portfolio companies to standardize their reports, so that everyone sends the same report each month.
However, since each company must report to numerous investors, each with a separate template, companies often ignore this request and continue working with their own templates.
2. Software templates
Leading software vendors for the portfolio management market haven’t yet been able to address this challenge.They usually offer an Excel add-in that creates a closed, guarded spreadsheet template that is sent to the portfolio companies to fill out.
Theoretically, this is a great solution, but realistically, it doesn’t hold water, since the portfolio companies just ignore this template and send their own spreadsheets.
3. Manual consolidation services
Surprisingly, the best solution to date is manual consolidation services offered by software companies. This means that they manually copy and paste the spreadsheet data into their systems.
Clearly, this method is especially prone to errors. In addition, the cost and time it takes for a software vendor to do this results in the same unfortunate outcome: VCs and PEs ultimately request less data within longer time cycles in an effort to keep the price down.
The DataRails solution
DataRails consolidates Excel spreadsheets in real time so that PEs and VCs can always get a clear picture of how portfolio management companies are performing. In addition, DataRails can consolidate this data from completely different templates.
The result is more accurate data delivered more frequently, so that PE and VC firms can benefit by making better investment decisions.