The rise of online private equity deal platforms
February 2015 | 10QUESTIONS | PRIVATE EQUITY
FW speaks with Urs Haeusler, chief executive of DealMarket AG, about the rise of online private equity deal platforms.
FW: How do you account for the rise of online private equity platforms? What are the trends that have led to this rise?
Haeusler: The volume of deals has been the main driver, though the highly globalised investment marketplace, and transparency with high quality information, tracking of deal flow and deal status, as well as the need for fast due diligence, have all contributed. Competition is tougher than ever, and an online tool helps an investor or entrepreneur to identify the deal they want and get moving quicker than with traditional methods. As with everything online, from social media to cloud workspace, having a private equity platform online means investors and entrepreneurs can always find the information they need. There is no longer a need for every stakeholder to be available and in the same place at the same time to get deals moving.
FW: What advantages can investors gain from using online PE platforms?
Haeusler: For starters, an investor network is immediately expanded, with the chance to meet new connections and explore opportunities even if they don’t ultimately result in a deal. Many investors might not invest today, but make a connection that pays dividends two years later. In terms of the investments themselves, it is really all about the transparency. As well as structured and specific deal information, an easy to search platform, shared workspace, instant access to M&A databases , intelligence services on demand, and the opportunity to do deals faster, anywhere in the world.
FW: Similarly, in what ways can fundraisers benefit from PE platforms?
Haeusler: Fundraisers benefit from immediate access to a large pool of accredited, experienced, fully vetted investors, without needing to set up investor pitches or deal with all the obstacles of actually getting to a meeting. There is also the option to promote a deal, as well as set up a compelling business profile to ensure that all the essential elements an investor would want to see are included. In a similar manner to investment professionals, there is also the chance to grow an individual’s network and connect with fellow fundraisers and private equity professionals.
FW: In your opinion, are online private equity platforms changing the way PE transactions are initiated and closed?
Haeusler: Absolutely. We have previously compared online PE platforms to online dating. Today, finding the right deal is quicker, cheaper and avoids the need to go out and have loads of bad experiences before you find the right one. Investors can filter the opportunities they are interested in and focus on those. Closing the deal is quicker, too, thanks to the collaboration and transparency offered leading to simpler decision making. In addition, a comprehensive online PE platform also provides deal flow management tools that help investors to more efficiently capture, store, manage and share their proprietary incoming deal flow. Today we see more and more investment clubs appearing, and an online platform helps to structure, automate and scale such clubs.
FW: With more investors now starting to utilise ‘deal flow management tools’, what does an investor need to know from the outset? How do these tools assist with individual needs?
Haeusler: Deal flow management tools allow an investor to leverage the advantages of online collaboration in a private, secure environment. In a nutshell, they help investors, or investment groups, to capture their proprietary deal flow in a standardised format, manage the internal investment decision process, including collaboration tools, and share information on deals with affiliated partners in a secure and controlled way. Standard deal flow management tools have been developed to meet the standard requirements of a general investor. There are some tools on the market that account for and offer customisation options to meet each investor’s individual internal processes. These allow for an even better leverage of all tool advantages.
FW: What advice would you give companies looking to use a private deal flow management tool? What variables need to be considered to create a platform that meets an investor’s needs?
Haeusler: An investor thinking about benefiting from this offering should evaluate his specific needs – key objectives, key tasks and processes to be supported, members to be involved, and so on – then look at the tools on the market and evaluate which tool is best for him. Particular attention should be paid to set-up costs, operating costs, customisation options and innovation pace. Cloud based deal flow management tools offer the advantage that the service providers will constantly further develop the platform, adding new services and improved features.
FW: Could you explain how these platforms address the high privacy and security requirements of PE professionals?
Haeusler: While the internet is very aware of privacy and security aspects, arguably everyone operating in the financial world is even more aware. PE platforms use state of the art technology to safeguard access, data, users and all other aspects of the platform, including https, Thawte certified data protection, TLS data encryption, and so on. A good platform should have a solid registration process in place to guarantee that the users on the platform are verified and can be trusted. Deal flow management tools enable users to set up their own private environment within the platform. Within this space, the user has full control over the member group and each individual member’s access and permission rights to the deal data.
FW: Do all online PE platforms operate in the same way? If not, what are the key differences?
Haeusler: In essence they all work the same way. However, service providers that were early to market have learned over the last four years what the market requires. Even better are platforms created by PE professionals for PE professionals, as they are ideally positioned to identify what is needed to create an effective tool. Broad service offerings are also desirable, essentially acting as a one-stop-shop for everything from global deal sourcing, networking, connecting with PE professionals and deal flow management to due diligence services and data on demand. Deal flow management tools should also offer unique customisation options, so investors receive exactly the online service they need.
FW: Given the rise in legal and process requirements associated with PE transactions, how do online deal flow management tools assist with the legal, regulatory and compliance issues faced by investors and advisors?
Haeusler: In essence, they make the whole process quicker, easier to follow, and make sure that everything that should happen, does happen. The whole deal process – from deal posting to the deal being done – is managed in a structured manner so anything can be analysed. Sharing and collaboration means all documents have a date and time stamp, as well as a note on the individuals responsible for it. Further, access to the deal data and documents is fully logged should there ever be a need to audit anything. Online deal flow tools also help to structure and guarantee the internal and external legal requirements to be fully compliant and reduce the risk of the company, as well as of every person involved in the deal, of making mistakes. As a result, we are beginning to see more and more inquiries from large organisations – including global banks – about using an internal deal flow tool to also manage the legal process, while making internal deal matching more efficient and transparent.
FW: How do you foresee the development of the next generation of online PE platforms? Are global PE networks likely to be the ‘next big thing’?
Haeusler: New services help PE professionals to connect and collaborate in even better ways. Today, investors can follow specific deals, companies and people to receive notification and search alerts for any news and updates on targets. More and more deals are being done in syndications and with groups of investors. These groups of investors are distributed globally and do not necessarily know each other. LPs are demanding greater transparency in the GP’s work, as well as more collaboration and decision rights. Increasingly, PE platforms with deal flow management tools support these requirements and will connect groups of investors even more efficiently in the near future. In terms of the development of PE platforms, there is no doubt they will continue to evolve, and as more PE professionals and fundraisers begin to use them, they will soon become the place to go for deals of any kind.
Urs Haeusler is CEO of DealMarket, a comprehensive platform for fundraising and deal flow management. He has a long track record in the web world. One of his major engagements was the scaling and internationalisation of the ticketing platform amiando, now Europe’s largest online event registration service and part of the XING group. Based on his online expertise and global network, he is valued as senior adviser for entrepreneurs and corporates alike. Before turning to the web, he worked as a strategy consultant for one of the big consultancy firms. He can be contacted on +41 43 888 75 30 or by email: firstname.lastname@example.org.
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