Guest Post: A Most Unusual Area: CRM for the VC, Not Invested in by the VC

A little while ago, I was contacted by David Teten, CEO ofTeten Advisors. He told me about a survey that he had done that had uncovered the best practices for private equity and venture capital deal origination. Guess what showed up? CRM and particularly CRM 2.0/Social CRM practices - and of course, traditional CRM software use. I was fascinated, because while I'm used to dealing with private equity and VCers - its usually me briefing them on the competitive CRM market and some company or another. This was how they used CRM, not how they invested in CRM companies. For those of you interested, Teten Advisors specializes in advising private equity and venture capital funds on accelerating deal flow portfolio, company executive optimization and recruiting and due diligence.

I asked David if he wouldn't mind doing a guest post on this subject. He wouldn't and here it is.

Take it away, David. And thanks for this.

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Paul asked me to write a brief summary of the findings of my research on Best Practices in Private Equity and Venture Capital Deal Origination. Unsurprisingly, effective use of CRM is a major focus of our research. We're also particularly interested in the use of Web 2.0 technologies. I've summarized below the highlights of what we've learned so far.

This has been a fascinating research project for me, as it has given me the chance to talk with over 125 professional investors about how they find attractive companies. Particularly in an environment in which so many companies are seeking capital, I think it's helpful for entrepreneurs to understand how the sellers of capital (investors) seek out the buyers of capital (entrepreneurs).

For background, a few years ago I co-wrote a book called The Virtual Handshake: Opening Doors and Closing Deals Online, which was the first book about how businesses can use online networks to originate deals, raise capital, win new clients, recruit star employees. My focus was high-touch professional services: investment banking, private equity, venture capital, law, and so on.

Last year, I decided to launch a research study narrowly on the topic of Best Practices in Private Equity and Venture Capital Deal Origination. We plan to submit the article to the Journal of Private Equity (part of Institutional Investor). You can see the slides from some presentations I've recently delivered on this topic at http://www.teten.com/deals . My coauthor is Chris Farmer, an alumnus of Bessemer Venture Partners and the private equity group at Bain & Co. We have interviewed over 125 private equity and venture capital professionals to date. I'm very lucky to have someone with Chris's blue-chip experience working with me on this project.

One striking finding is how many vendors exist focused on this sector. We presume this is because many vendors saw institutional investors as a high-profitability group of customers…at least until the econalypse. Some of the platform vendors we've identified: Accounting Frameworks; AnalytX; Angelsoft; Burgiss Group; Davigold; eFront; Equitytouch; FundCount; LexisNexis Interaction; Netage Solutions; Relevant Equity Systems; SS&C Technologies; Sunguard Data Systems; TheNextRound; and Vitech Systems Group. We've also identified numerous consultants with a strength serving this community, including but definitely not limited to Business Management International; Infinity Info Systems; and NSK Inc.

In our survey, the most popular CRM platforms appear to be Salesforce.com, Act, and SalesLogix (in that order). We should also highlight Angelsoft.net, which is by far the leading deal-tracking application for the angel network community, and has now added several dozen venture capital clients.

It's a truism for most professional services firms that they should have a global CRM system. But, a striking finding to us was how many large financial services firms lack one. Carter Hinckley, Director, Strategic Accounts, Infinity Info Systems observed, "Financial services firms may think they don't need a global CRM system for several reasons:

1. Compliance - It's difficult for compliance reasons to give everyone in a firm access to all information.
2. Politics - Each individual group is often hesitant to share data. For example, an M&A banker might worry that the private bankers would hurt his relationship with a key CEO client.
3. Budget - Individual groups are usually set up so they're hesitant to pay for any firm-wide initiatives.
4. Process - The sales process in many financial services firms often varies by area, rather than being homogeneous across the firm. Either there's no formalized sales process, or it varies by group. In either case, automation is challenging."

We interviewed a number of prominent funds who admitted that they had weak use of their CRM system, if any CRM system at all. The #1 most commonly stated reason was time; many professionals felt that filling in data on a CRM system was a distraction from more value-added work.

CRM vendors with whom we've spoken have voiced similar concerns about this client group. Ray Haarstick of Relevant Equity Systems observed, "Not enough venture capital/private equity firms use technology to track their deal flow. The last team to leverage technology is often the deal team. They have quite a bit on their plates. Finding deals and growing the value of portfolio companies is time-consuming, so unless they see an immediate payoff to logging and analyzing their deal due diligence in a system, it will be hard to get the deal team to commit to tracking more than a handful of data points. Relevant's approach is to give them comprehensive, user configurable screens that minimize the amount of time required to track investments. Another key initiative is to extend the data capture and review of deal data to handhelds like the Apple iPhone. If it is easy to enter and access data, deal makers are more inclined to make use of technology."

Hinckley emphasized the importance of creating value-add for the user. The system has to immediately create value for the user, or they're prone to not enter data into the system.

Tim Lasonde, CTO of Equitytouch, observed, "What we are finding in the market is that the paradigm shift to the web 2.0 and collaboration mentality is hitting the alternative asset community last (slower). Associates are asking for it, but partners don't see the value yet. There is also still this fear of having data in the cloud; however, this objection is becoming less common as more companies adopt cloud services."

There are a number of questions we are continuing to investigate. We would welcome input from readers on these issues, and are happy to cite the most insightful comments in our research:

• Are you aware of a current, thorough, and neutral buyer's guide to CRM systems for institutional investors? We may have to write it if we can't find it.
• What data sources do investors find most useful to integrate with their CRM systems? Among the names that have come up: Money Market Directory and Nelsons.
• What are best practices in implementing CRM in a CRM-resistant culture? Professional investors are now spending a large amount of time on public social networks (LinkedIn, Xing, Facebook, Plaxo, etc.).
• What is the best way to integrate that data and activity into the corporate CRM system?
• Why are financial services professionals typically resistant to sales process formalization and CRM systems, and how can those objections best be addressed?
• Lastly, what advice would you share with our audience: professional investors trying to use CRM systems in an optimal way to enhance their deal origination efforts?

You can contact us at info(at)teten.com, or http://www.teten.com/contact.htm .

Comments

[Penny Stocks]

Venture groups waking up to the benefits of CRM...extremely insightful article, I am looking forward to new things!

[pills]

Thank you for your interesting article, and your blog is also full of useful information, many find useful information.

[Christopher Nielsen]

Dave: Quick input on questions and hey if you get a collaboration group together on this I too am interested in participating.
Q1. would it not be great if there was something like www.cmsmatrix.org available for CRM... perhaps they would participate in helping to create one for CRM as well.
Q2. TechTarget had some great research on this at their latest conference in Boston... comb their site or maybe contact them
Q3. Well this is a great question and we developed a value building program to help companies identify this very answer. I do not think this can be answered without a lot of other questions associated to ti and asked before it.
Q4. I think you need the answers to Q, 3 first
Q5. I am not a Financial service pro so can not help on this one other than what I posted in my blog
Q6. Do not be afraid to get hands on... the more you can understand about the platform you choose and its capabilities or limitations the more you can get out of it. Do not try to pass everything to your staff to implement. The more this system implementation can come from the top down the better your chances of success will be. The paradigm shift is that it becomes a different way of running your business... the same or similar business processes mapped to a new tool suite. There is always resistance for change. Heck, I live and breath our CRM and it still takes discipline for me. You do not need to be the "auto mechanic" but you have to understand well how your "vehicle" works and the "road" conditions to get the best "millage and response" from your investment.

[Christopher Nielsen]

Paul and David, It is great to read this discussion and I look forward to seeing the answers to those questions. Perhaps I will think about them more and respond later. I just posted on my blog about this since it is a topic that has been eating at me for a while. We have been trying to get our CRBM Platform in front of VC Guys for a while. Perhaps the timing is getting better to do this since everyone has to be a bit more careful with their investment capital.

Seems like a "no brainer" to me that not only the VC groups but the companies they invest in should be wired up in a good CRM system if they want to future proof their businesses. The fact we support a system based on Open Source is also cool since open source solutions are now getting a second and third look by the enterprise as they look at lower cost of ownership. Definitely exciting times we are in.

"Venture Groups are waking up to the benefits of CRM" http://www.cnpintegrations.com/myblog
or http://www.cnpintegrations.com/myblog/Venture-Groups-should-wake-up-to-the-benefits-of-CRM/

Sincerely,
Chris Nielsen

[Brian Vellmure]

David,

While I don't have immediate answers to your questions. I am more than happy to collaborate with you to find/define them.

Paul - thanks for the post and interesting insights, as usual.

Best regards,
Brian