Technology is changing rapidly and dramatically in the world of private equity. Private equity firms can only outperform if they understand uncertain futures with greater insight than their rivals. They have to handicap the probability of different outcomes in a highly uncertain future. To do that they need more data and better analytics. They need not just greater scope and accuracy in their data processes but also greater speed.
This emphasis on data is not just about selecting investments more intelligently and valuing them with more acuity. It is also about enabling companies which private equity firms already own to deliver better products and services for their customers and to make their operations more efficient.
Innovation based on data not just from their own data lakes but also the world’s largest database, the internet, is now critical for all companies large and small. If they fail to take advantage of this wealth of new information to innovate ahead of their competitors, then the competitors will innovate ahead of them.
Private equity firms because of their scale and experience can be critical in resourcing their portfolio companies to take advantage of the opportunities the data age is offering. That is why many now have invested both in resources within their own teams and relationships with external service providers.
In the past private equity firms were generally in the main staffed by ex investment banking and strategic consultancy professionals and sometimes a smaller number of ex management executives from sectors particular private equity firms focus on. More private equity firms are now adding technology professionals particularly in data science.
One of the challenges many private equity firms face is that their most senior professionals who are taking investment decisions (outside of firms that have historically been focused mainly on technology companies) are often not experienced in the emerging disciplines that accelerating technological innovation is creating. Those that are oriented towards learning at speed and who are willing to invest in doing so for themselves and for their organisations are much more likely to thrive.
The challenges are real but the opportunities are mind blowing. Technological innovation is the main long term driver of productivity and productivity growth is the main driver of overall economic growth. Private equity is most successful when it can drive economic growth faster creating more wealth and more wellbeing for as many people as possible. Private equity’s ability to move at speed, to take risk and to lead change gives it a big advantage in periods where technological innovation is fastest and that is the case today.