10 Best Practices For Deal Flow Mgt

A Netage Solutions Whitepaper

10 Best Practices for Deal Management Software
Deal-flow is the lifeblood of private equity, venture capital, and real estate
10 Deal Management investment firms. Yet, with the economy on a sluggish road to recovery, the
Best Practices: sourcing and acquisition process continues to require an extraordinary
amount of time and effort. How can you keep up? Deal management
1. Automate Deal Pipeline software—often a module of Customer Relationship Management (CRM)
Reporting platforms—is typically seen as the answer. However, if these systems aren’t
sophisticated enough to handle the complexities of the alternative assets
2. Track and Analyze Deal industry, they will ultimately fail to deliver on their promise.
Referrals
Having helped alternative investment firms streamline their deal management
3. Integrate Online Data
processes for more than a decade, Netage Solutions has compiled the
Sources
following 10 best practices for deal management software. By incorporating
4. Separate Deals and Deal these best practices, investment professionals can be more efficient and
Opportunities effective, thereby enabling their firms to source and close more profitable
deals.
5. Quantify Reasons Deals
are Won and Lost
1. Automate Deal Pipeline Reporting
6. Streamline Deal
Management Processes The Monday morning partners meeting can be very stressful. With important
investment decisions on the line, the last thing your deal team needs is a
7. Monitor Your Most
weekly fire drill to prepare or update the deal pipeline report.
Important Deals

8. Configure, Configure, Your deal management software should have a Subscription Service for
Configure scheduling and automatically distributing recurring reports, such as your
weekly deal pipeline report. That way, when your deal team gets in the office
9. Stay Connected on the on Monday mornings, the report is waiting for them in their inboxes.
Road
To ensure the most up-to-date information is presented, many firms distribute
10. Generate Capital Calls
a draft report on Friday. This reminder prompts the team to add or edit deals
Quickly and Precisely
before the final version is sent out Monday morning. If the updates still
haven’t been made—and a deal isn’t in the report—some firms won’t even
allow it be discussed in the meeting.
Subscription Service - A
feature of a deal management
system’s reporting engine that 2. Track and Analyze Deal Referrals
enables users to subscribe to
recurring reports (e.g. weekly Maintaining strong relationships with investment bankers and brokers is
deal pipeline). crucial to generating deal referrals. Like any process, though, what can't be
measured, can't be improved. By tracking and analyzing referrals, your firm
can better direct its efforts and obtain higher quality referrals.

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© 2010 Netage Solutions, Inc. All rights reserved.


To effectively track referrals, your deal management software should have
Roles, which allow you to link a contact and/or an organization to a deal as the Roles - A feature of CRM or
“referrer”. (Note: you can also use Roles to designate other key players, such as deal management systems that
attorneys, consultants, lenders, co-investors, etc.) This role should be unique to run on a relational database.
each deal, because individuals/organizations often play different roles on Roles allow you to create a
different deals (e.g. Joe Banker is the “referrer” on Deal A and the “consultant” on unique relationship between two
Deal B). records. For instance, a contact
can be linked to a deal and
Over time, you can identify your best referral sources by running a report that assigned the role of “Referrer”.
lists all of the deals that were referred in a given period and by whom. The
report should also break out which deals closed, which were turned down, and
which are active in the pipeline. As a result, you can see who is sending you the
most deals (quantity), and who is sending you the best deals (quality). This
intelligence can help you determine which relationships should be more actively
cultivated.

3. Integrate Online Data Sources

Investment professionals rely on a variety of online data sources (e.g. CapitalIQ, Browser Panel - A capability for
Hoovers, Yahoo! Finance, LinkedIn, etc.) for deal origination, due diligence, and integrating online data sources
networking purposes. Because these data sources are often disconnected, into a deal management system.
synthesizing and utilizing information can consume valuable time and energy. A browser panel passes
parameters to external sites,
Your deal management software should have a Browser Panel that intelligently allowing users to view context-
integrates external data sources, allowing you to view context-specific specific information, such as
information without leaving the application. Targeted information can be company fundamentals from
retrieved by passing specific fields (e.g. company name, ticker symbol, address, CapitalIQ and a contact’s
etc.) to these sites. That way, when you’re in a deal or contact record, you can LinkedIn profile.
instantly view additional information.

The data integration possibilities are endless: company fundamentals from
CapitalIQ or Hoovers; stock prices and market data from Yahoo! Finance; news
and press releases from Google News; a map of the company’s headquarters
from Google Maps; LinkedIn profiles for contacts; and more. These data sources
can become a seamless part of your workflow, making you more efficient and
effective.

4. Separate Deals and Deal Opportunities

Occasionally in private equity investing, the same deal comes around more than
once. You might evaluate a promising young company, but ultimately turn down
the deal because the market isn’t mature enough. If you take another look at the
business two years later, you’ll want to keep this round of due diligence separate
from the previous one.



To accommodate such scenarios, your deal management system should
Deals - A term used by certain distinguish Deals, or the companies being evaluated, from Deal Opportunities,
deal management systems for the discrete act of evaluating them. Regardless of the terminology used, you’ll be
the companies that are able to track multiple, distinct opportunities with the same company. Ideally, all
evaluated by private equity or relevant information – documents, correspondence, tasks, contacts, etc. – will be
venture capital firms. tracked separately as well, with the ability to roll up everything to the company
level.
Deal Opportunities - The
discrete act of evaluating Because no data or records need to be overwritten, all history and context is
companies (a/k/a Deals). preserved. You can quickly see why the deal was turned down initially and focus
Occasionally, a firm needs to your due diligence accordingly. You can also more accurately report on deal-flow
track multiple Deal and team activities over time.
Opportunities with the same
Deal. 5. Quantify Reasons Deals Are Won or Lost

Often, the reason a private equity firm did or didn’t invest in a particular company is
captured in a free-text notes field—which isn’t quantifiable—or worse, someone’s
head. By structuring your deal management system properly, you can more easily
quantify the reasons deals are won or lost, and identify trends that direct future
deal origination and acquisition efforts.

Dropdown List - A feature of Notes fields are fine for capturing anecdotal evidence, but they can’t quantify
deal management systems that results. Your system should also have configurable Dropdown Lists for capturing
allows users to choose one or reasons invested and reasons turned down. Dropdown lists enforce uniformity,
more values from a list. which improves your ability to generate reports and perform other ad hoc analysis.
Dropdown lists make it easier to For instance, you could group, filter, or sort a list of deals by the “reason turned
quantify business results, such down” field.
as the reasons deals are won
or lost. However you consume the data, you will start to see trends, especially when you
incorporate additional data points, such as industry, region, revenues, and
investment stage. For instance, you might notice that you’re firm is striking out in
the pharmaceutical industry and decide to focus instead on medical devices, where
you’ve had more success.

6. Streamline Deal Management Processes

Deals move through the pipeline because of a variety of different tasks and
processes, some more structured than others. There are personal reminders to
follow up on a specific date and time; one-off tasks for you or other team members;
and more defined processes that should happen automatically at different stages in
the deal lifecycle. Your deal management system should manage all three.



For personal follow-ups and reminders, many deal management systems use
Flags. Users can “flag” any item (e.g. a deal or contact) for follow up on a Flags - A feature for tracking
specific date, and add a note with the required action or other pertinent personal follow-ups and to-dos.
information. Flags typically integrate with an e-mail program such as Microsoft Any item can be flagged for
Outlook®, so that an automated reminder pops up at the designated time. follow up on a specific date.
Similar to the Flag feature
In addition to Flags, your deal management system should have Tasks, which within Microsoft Outlook®.
can be assigned to the creator or another team member. Tasks can be given a
due date, as well as a priority, allowing users to prioritize their workload. And Tasks - A feature for tracking
because they’re visible to everyone, your firm can avoid the “black hole” of email specific actions that must be
and have more accountability and visibility into progress with your deals. completed. Tasks can be
assigned to the creator or
At a more advanced level, some systems allow you to build Workflows that another team member, and
trigger actions when certain conditions are met. One example is sequential given a due date and priority.
reviews: once a specified person has reviewed the deal financials, the system
will automatically create a task and send notification to the next reviewer. Workflows - A structured
Specific tasks can also be created when a deal’s pipeline status changes. On process that triggers
the other hand, if the deal has been ‘static’ for a certain amount of time, the pre-defined actions or tasks
individual responsible can be notified or the status can be changed. when certain conditions are
met. For instance, a task can
7. Monitor Your Most Important Deals automatically be created when
a Deal’s status changes.
Like other knowledge workers, investment professionals are constantly
bombarded with data. To avoid information overload, they must apply various
methods for filtering out the “noise” and focusing only on that which is most
important.

This concept applies to deal management systems, which often house large Watchlist - A live, dynamic
quantities of data. Regardless of whether it has 10 or 10,000 records, your report that provides a running
system should have a mechanism that enables you to focus on the handful of list of updates to selected
deals or contacts that are most important at any given moment. In some records. Investment
applications, this mechanism is a Watchlist, or a running list of updates for the professionals can use a
records you’ve selected. For best effect, this report should be prominently Watchlist report to monitor their
featured on the application homepage. most important deals.

At a glance, users can monitor updates to important records, including new
activities that were added or fields that were changed, when the updates were
made, and by whom. Investment professionals can easily see all activity related
to their active deals or portfolio companies. They could even monitor deals
they’ve sourced to ensure they’re awarded proper deal credit. However the
report is used, the system pushes important information to you, versus you
having to pull it from the system.



8. Configure, Configure, Configure

Another good way to filter out “noise” is to properly configure your deal
management application. Typically, applications provide hundreds of stock fields
and layouts out of the box. While these are good starting points, they are just
suggestions and probably aren’t all applicable to your firm.

Admin Site - The area of a Before you start “slashing and burning”, though, take some time to define your deal
deal management system management process. What are the various stages and the corresponding
where IT staff or power users workflows and tasks? What terminology does your firm use for pipeline statuses
can configure and maintain and other important metrics?
the application. Certain
systems have a “sandbox”, Once you’ve mapped out your process, you can begin configuring. Using the
where configuration changes application’s Admin Site, remove fields that you aren’t going to use and that will
can be previewed before they otherwise bog down end-users. In addition, rename existing fields to coincide with
are published to end users. your firm’s terminology. Tailor layouts and reorder fields to match the workflows
you’ve outlined.

Rules-Based Layouts - Some systems also have capabilities for creating Rules-Based Layouts that are
Layouts or information panels displayed only when certain conditions are met. For instance, you might have
that are displayed only when specific layouts for tracking information on portfolio companies. Because they
certain conditions are met aren’t necessary for the pre-investment process, they can be kept hidden until the
(e.g. the pipeline status of a pipeline status is changed to “portfolio company”.
deal is changed to “portfolio”).
Before we move on, it’s important to note the difference between configuration and
customization, as the two terms are often mistakenly used interchangeably.
Through configuration, an application can be tailored or modified without creating
or modifying software code. Customization requires code changes, and is thus a
lengthier and more costly process that often leads to long-term maintenance
issues.

9. Stay Connected on the Road
Software-as-a-Service - A Because private equity professionals are frequently on the road, they need to be
software delivery model where able to access deal and contact information from any location—and from multiple
applications are hosted by the devices.
vendor and accessed by
clients through a Web While client-server applications can be accessed remotely – your IT department
browser. Because SaaS would have to set up a remote desktop service – their performance tends to be
applications don’t require slow in such environments. A much more effective solution is a deal management
installation, they can be application that’s delivered via Software-as-a-Service (SaaS). Because SaaS
accssed from any computer applications require no software installation, they can be conveniently accessed
with a browser and Internet from any computer with a browser and an Internet connection. Whether you’re
connection. using your business laptop, home computer, or a PC in the hotel business center,
you’ll be able to log in and get work done.



For situations where using a computer isn’t an option (e.g. in a cab on the way to
an important meeting), your deal management system should have Mobile Mobile Apps - Extend the
Apps for accessing information from your iPhone® or BlackBerry®, in addition capabilities of a deal
to new tablet devices like the iPad®. You should be able to look up profiles and management system to a
contact info, view and add activities, log calls and e-mails, and map addresses smartphone. Because users
with the device’s built-in GPS. Depending on the mobile capabilities, you may can easily view and edit
also be able to run reports (e.g. deal profile, deal pipeline, etc.) and view information, they’re able to stay
documents. connected and work
productively on the road.
10. Generate Capital Calls Quickly and Precisely Mail Merge Wizard - A tool for
creating and distributing
When a deal closes, your investor relations team is likely under a lot of pressure
personalized correspondence.
to send out capital call notices as quickly as possible.
Investor relations teams use
this feature to send capital call
Fortunately, certain deal management systems are part of a broader relationship
and distribution letters, as well
management platform with capabilities for managing investor relations. These
as quarterly statements.
platforms typically have a Mail Merge Wizard for generating capital call letters
and other correspondence. Mailing lists can be generated instantly by selecting
Investor Portal - A module of
the capital call recipients for a specific fund (using roles, as described in #2).
certain CRM platforms that
Using saved templates, the letters can be quickly created and personalized with
allows you to post reports and
data, such as the contact name, fund name, and transactional data about the
correspondence to a secure
capital call.
portal. Portals save time and
money by minimizing mailings.
Beyond the standard distribution channels (e.g. mail, e-mail, etc,), many systems
have an integrated Investor Portal for posting fund and account information.
Capital call letters and other correspondence created with the Mail Merge
Wizard can be published directly to the secure portal for LPs to download. By
minimizing mailings—and those dreaded envelope-stuffing parties—your firm
To learn more about Netage’s
can save significant time and money.
deal management solution,
Dynamo™, please contact us
at 1.866.439.6266 or
sales@NetageSolutions.com.

Since 1998, Netage Solutions, Inc. has been the premier provider of front-office solutions for the alternative
assets industry, including private equity and venture capital firms, hedge funds, real estate investment firms,
funds of funds, prime brokers, family offices, and institutional investors. Intuitive and highly configurable, the
Dynamo™ Suite has improved the productivity of deal, research, and investor relations teams worldwide.
Collectively, our clients manage over $400 billion in assets.


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