The Role of a Single Source of Truth in Private Equity: What’s the Measurable Impact?

In 2022, Intertrust and Everest Group interviewed 150 private capital firms to understand the current and upcoming challenges in the market. 

75% of the private capital firms cited the inability to consolidate business systems as a major struggle.

This fragmentation leads to inconsistent data, delayed decisions, and missed opportunities. Without a cohesive system, data remains siloed, making it difficult to obtain a clear and comprehensive view of the fund’s performance. 

Limited Partners (LPs), once passive investors, now demand higher control and transparency over their fund data. 

Over 70% of asset managers have reported increased LP interest in back-office functions, with nearly 30% describing this rise as significant.

Without a Single Source of Truth (SSOT), fund managers must pull data from multiple sources, leading to errors, conflicting figures, and eroded trust. Compliance reporting becomes labor-intensive, requiring hours of reconciling data from different systems.

Adding to these challenges is the war for tech talent.

Nearly 64% of private capital firms struggle to recruit and retain qualified staff, making effective data management even more difficult.

An SSOT can help address these issues by consolidating all data into one unified platform. This approach ensures accurate, real-time information for all stakeholders, reduces errors, enhances efficiency, and improves decision-making and communication with LPs.

Why Unified Data Is Useful for Your Fund 

As a fund manager, your mornings are spent generating crucial financial reports for stakeholders and Limited Partners (LPs). Throughout the day, you're immersed in strategic planning, portfolio monitoring, due diligence on potential investments, and evaluating new opportunities.

Without unified data, pulling information from various sources becomes a constant struggle, increasing the risk of errors and inefficiencies. This fragmented approach can lead to missed opportunities and suboptimal decisions.

Additionally, investors are more hands-on than ever, making effective communication critical to maintaining their trust. Providing timely, accurate updates on fund performance is nearly impossible without consistent data, leading to conflicting reports and eroding investor confidence.

In a Quora thread, the question was posed: 

Should large companies that manage vast amounts of funds and data stop using Excel spreadsheets altogether? 

Gordon Hummel, a software development expert, provided an insightful answer. He explained that Excel is limited by the amount of data a worksheet can contain, including 1,048,576 rows by 16,384 columns. It also has other constraints, such as a maximum column width of 255 characters and a maximum row height of 409 points. 

Since private equity firms often deal with extensive financial datasets, they will require software capable of complex analyses beyond Excel's functions. 

A Single Source of Truth (SSOT) can transform your workflow. Initially, many fund managers didn't see the need for a SSOT, relying on traditional methods for data consolidation. However, as the volume and complexity of data grew, so did the inefficiencies and errors. Early adopters of SSOT found that it centralized all data, ensuring consistency and accuracy across all reports and communications.

At Vestlane, we have spoken with many fund managers, law firms, auditors, and investors about their ideal onboarding and data management engine. In a conversation with Thilo Wurst, Headline's Legal Counsel, we learned firsthand how their legal, finance, and investor relations teams all use Vestlane. They all agree that having this single source of truth to refer back to is incredibly useful.

Spreadsheets are also challenging for collaboration—they aren't designed for multiple users to access and view data simultaneously. This often results in duplicate copies of critical documents, such as compliance reports, UBOs, and signatories' information. Documents can also go missing when exporting from one system and importing to another, further complicating data management.

By implementing an SSOT, you can streamline data consolidation, reduce errors, and make informed decisions quickly. This cohesive system enhances your ability to optimize portfolio performance and maintain strong investor relationships. 

SSOT is Great, but How Do You Implement It With Minimum Effort? 

Just as you’re an expert in managing funds, you need experts in providing a unified source of data. This requires scalable technology built to address your unique needs. 

Start by scheduling demo calls with providers who offer tools to support fund management. During these consultations, identify your organization's unique requirements and pain points. Scrutinize each process to determine what is genuinely necessary and what can be optimized. 

Ivo Schmiedt, Co-founder of Vestlane, believes that understanding clients’ specific needs and tailoring solutions accordingly is crucial. This approach ensures that the platform suits your operations, enhancing effectiveness.

Next, it’s time to convert all those physical documents and PDFs into digital formats. The fund management software you choose should help streamline this transition, creating a structured dataset that is easier to manage and less prone to errors.

Once your data is digitized, bring your internal team members, investors, and anyone else who needs access to the data on board. This includes your finance team, legal team, compliance team, investor relations team, and portfolio managers. By providing access to these key players, you ensure that everyone works with the most accurate and up-to-date information, improving overall coordination and decision-making.

Remember to schedule training sessions to help users get comfortable with the new system, understand how to input data correctly, and retrieve the information they need. Most modern technology platforms, including Vestlane, are designed to be intuitive. At Vestlane, we've found that users quickly grasp how to use the platform without issues. You should expect a high level of ease with any quality tool, minimizing the need for extensive training.

Vestlane has features like automated investor reporting to enhance investor engagement and build trust, which provide real-time data on signatory changes and cap table adjustments. This ensures that fund managers and external parties stay informed, facilitating rapid decisions and clear communication. Additionally, using a Data Room to share your fund documents and invite Limited Partners (LPs) to invest can significantly streamline the investment process.

Now, you might be worried about the security risks of centralizing your data. However, a single, well-protected repository is actually easier to secure than multiple scattered databases. 

Regular data backups mean you can quickly recover lost data, keeping your fund operations running smoothly and protecting your critical information. Plus, centralized data repositories comply with relevant regulatory standards like GDPR and CCPA, which enhances security and reduces legal risks.

When Ivo worked as a lawyer, he saw firsthand how the fund subscription process was traditionally managed through cumbersome physical documents and PDFs.

I saw how managing fund subscriptions with physical documents and PDFs was not only inefficient but also cumbersome. It was clear that the process needed a more streamlined and modern solution.

Ivo Schmiedt

Co-Founder & CPO & MD

This method was not only inefficient but also prone to errors, making it challenging to maintain accurate and consistent data. He also highlighted the lack of a centralized system as another major challenge. 

With Vestlane, fund operations, and onboarding investors are not only streamlined but also compliant with relevant regulations, enhancing both efficiency and security. This digital transformation helps fund managers focus more on strategic activities rather than getting bogged down by administrative tasks.

Implementing an SSOT with minimal effort is achievable by customizing your solution, digitalizing and structuring your data, onboarding your team and investors, integrating other digital systems you’re using, automating processes, and staying compliant with regular updates. By leveraging the right technology, you can transform your data management process and drive better outcomes for your investments. 

Private Equity Firm’s Real Experience With Implementing a Single Source of Truth

Let's explore some real-world case studies that highlight the successes achieved through SSOT and key takeaways for other funds considering this implementation.

Case Study: Headline

About: Headline is an international venture capital firm with offices in Berlin, Paris, London, São Paulo, San Francisco, Taipei, and Tokyo. Their Early Stage Funds invest locally in the US, Europe, Asia, and Brazil, while their Growth Funds invest globally from Series B and beyond. 

Successes:

• Vestlane’s centralized communication channels and automated compliance systems for KYC and AML enabled Headline to manage the complexities of fund management more efficiently.
• Vestlane provided a single source of truth, ensuring all teams had access to consistent and reliable information, enhancing overall coordination and decision-making.
• Automated investor updates and real-time data on signatory changes and cap table adjustments kept fund managers and external parties informed, facilitating rapid decisions and clear communication.

Takeaways:

• Implementing advanced technology solutions like Vestlane can simplify complex tasks and improve efficiency.
• Working with technology providers who understand your firm's specific needs is essential for optimizing operations.
• Ensure continuous communication between all stakeholders to maximize the benefits of technological tools.

Case Study: FPE Capital

About: FPE Capital is a specialist growth equity investor based in London, England. The firm focuses on investing in software and technology-enabled services businesses in the UK and Ireland.

Successes:

• They can track deal progress by source, size, subsector, and region. Since implementing an SSOT, FPE has tripled the number of companies it tracks.
• By centralizing company information, financial data, prior interactions, and fees paid, all team members can access this information anytime, ensuring data integrity and accessibility.

Takeaways:

• Store all deal and relationship data in one secure, accessible location to improve data integrity and insights.
• Develop structured meetings, activity tracking, and deal management processes to enhance team coordination and efficiency.
• Use data analytics tools to gain deeper insights into investment activities and relationships for better decision-making.

Case Study: Uncork Capital

About: Uncork Capital is a seed-stage venture capital firm with over $900 million in assets under management. The firm has invested in over 260 companies, including Poshmark, Postmates, Eventbrite, Fitbit, and SendGrid.

Successes:

• By automating workflows and establishing consistent processes, Uncork Capital significantly increased engagement with key stakeholders:
  • 45% increase in founder interactions.
  • 122% increase in executive interactions.
  • 71% increase in important stakeholder interactions.
• Centralizing data and contacts enhanced consistency and accessibility, leading to better insights and decision-making.

Takeaways: 

• Ensure all your data and contacts are synchronized in a single platform to maintain consistency and improve access to crucial information.
• Utilize technology to automate tedious processes, improving overall efficiency and allowing your team to focus on strategic tasks.

Calculating the ROI of a Single Source of Truth

Implementing a Single Source of Truth (SSOT) can be a significant investment for any firm. However, understanding the potential return on investment (ROI) is crucial to determining whether it is worthwhile. Here, we break down the costs associated with having an SSOT platform, discuss the savings it can generate, and provide a framework for calculating the ROI.

Identify Costs

Initial Costs:

• The cost to purchase or subscribe to the SSOT platform.
• Any expenses related to setting up the system, migrating data, and integrating it with existing systems.
• Costs for training employees to use the new system effectively. 

Ongoing Costs (Annual):

• Subscription Renewals or ongoing licensing fees for the platform.
• Costs associated with cloud storage or on-premises data management.

Identify Savings and Benefits

Reduced Labor Costs:

• Automating data entry, consolidation, and reporting processes can save significant time. Identify current labor costs and estimate the time saved per week by automation, then calculate the savings based on hourly wages.

Improved Decision-Making:

• Better-informed decisions can lead to increased revenue and cost savings. Estimate the financial benefits of making more accurate and timely decisions.

Compliance and Risk Management:

• Calculate savings by identifying current compliance costs and estimating the reduction in potential fines or legal costs due to improved compliance.

Enhanced Productivity:

• Centralized data reduces the time employees spend searching for information, leading to increased productivity. Calculate the savings by estimating the time saved per week and multiplying by the hourly wage of the employees involved.

Calculating ROI

• Total Initial Costs = Sum of all initial costs.
• Total Ongoing Costs (Annual) = Sum of all ongoing costs.
• Total Savings (Annual) = Sum of all annual savings.

Year 1 ROI = (Total Savings (Annual) - Total Ongoing Costs (Annual)) − Total Initial Costs

Subsequent Years ROI = Total Savings (Annual) − Total Ongoing Costs (Annual)

Investing in an SSOT platform can yield substantial returns through cost savings, improved decision-making, enhanced productivity, and better compliance. By carefully evaluating the initial and ongoing costs against the potential savings, firms can determine the true value of this investment.

Ultimately, an SSOT is not just about technology; it’s about transforming how your firm operates and competes in the marketplace. With a single source of truth, you position your firm for greater success, agility, and growth. 

For more advice on implementing a Single Source of Truth tailored to your fund's needs, feel free to contact our team.