Preqin and LexisNexis Enterprise Solutions just released a report on “CRM Systems and Private Equity Deal Sourcing”, based on a survey of 63 private equity funds.

They report that 84% of respondents claim to source over 20% of their opportunities through proprietary deal flow. Based on our research, I think that these respondents are taking a very liberal view of what constitutes “proprietary deal flow”.

The study also found that, “80% of participants stated that they already use a CRM system for relationship management, or would use it for this purpose if they were to invest in one.” I suspect that this is a very liberal definition of “CRM system”. EquityTouch found in a 2009 survey of 61 PE funds that 37% were using no formal CRM application; instead, they were typically using only Microsoft Outlook and Excel. I don’t consider those CRM.  The most popular CRM tools were: Salesforce.com (17%); Act (15%); Saleslogix (7%); and Microsoft Access (7%). We should highlight another provider, Gust (formerly Angelsoft), which is by far the leading deal-tracking application for the angel network community, and also has over 100 VC clients. 

Given the congenital weakness of institutional investors in inputting and updating information, we think you should automate as much as possible the process. We have identified five ways in which investors can systematically add data to their CRM systems:

· Employee networks. One of the most powerful ways to get data within the CRM system is to use a relationship capital tracking tool, such as ContactNet’s Enterprise Relationship Management platform. These tools automatically spider through the emails, IMs, and other tools of a firm’s employees, in order to identify with which people the firm has relationships. Mike Ahearn, human resource partner at Boston-based VC firm Greylock Partners, reports that he finds these tools are a good way to find IT people who aren't actively searching for work and may not otherwise come up on his radar screen.

· Business cards. We recommend using a card scanning tool such as those sold by Cardscan, IRIS, Neat, or Presto to incorporate this data into your CRM system.

· Data from email and files. A number of vendors sell tools which automatically suck in data from email signature files, web pages, etc., into your CRM system. This speeds up data entry by obviating retyping. Vendors include eGrabber, Gwabbit, GrabText, and Broadlook.

· The cloud. We recommend setting up an automatic synchronization with some of the major public contact databases (LinkedIn, Spoke, Plaxo), which allows you to get current contact information.

· From the company directly, e.g., via a web-based application such as Angelsoft.

Most important is culture.  I know one PE fund where the manager has said that he evaluates the contributions of his team based on their activity in the CRM system.  If there’s no data in the CRM, that implies they’ve done no work, which implies no bonus.  Use of the CRM system at his firm is, understandably, very high. 

(Graphic courtesy of Gauravonomics)

As a startup, the ability to create publicity for your business at minimal to no cost can be invaluable. We've listed below some of the more creative ways that we've seen our portfolio companies and others attract the media.

MAJOR CONFERENCES SEEKING STARTUPS TO FEATURE (AT NO CHARGE)

Conferences are a great venue for educating influencers about your business, plus they're fun! For a useful guide on how to gain PR from high-profile startup conferences, check out

Conference Tips For Startups: Where To Go And What To Do Once You Get There , and 15 Tips from Keith Ferrazzi: Conference Commando.  For a full list of major tech conferences, see technologyconference.com .  For a database of major startup competitions or large events that help startups promote their business, see this very helpful database from SocialCompare.

hackNY is not really a conference, but definitely will help boost your profile.  (We're a sponsor.)  Selected startups show a demo of their API at the beginning of the hackny hackathons and - just as importantly - are encouraged to stick around to help the hackers integrate your code into their projects. This is a chance to impress NYC's next generation of code powerhouses, many of whom will be looking for summer internships.

PERSONAL COMPETITIONS

NYC Venture Fellows: Selective, international program to help successful entrepreneurs take their ventures to the next level. Each year, 20-30 "rising star" entrepreneurs from New York City and around the world are selected through a competitive nomination process.  Established by NYCEDC in conjunction with Fordham University, the program is designed to:

- Assist successful entrepreneurs in scaling ventures that have the potential to create jobs in NYC

- Encourage international and non-NYC entrepreneurs to open offices in NYC

- Build connections among entrepreneurs, established NYC companies, and international businesses

I list many other elite programs for "young leaders" in a talk I gave at NYU on squeezing maximum value out of school.  See the section on "Selective Programs" (slide 35 and there after).  I'll be blogging more on this topic soon.

BUSINESS PLAN COMPETITIONS

For an exhaustive list of business plan competitions, check out MIT Global Startup Workshop's list.  Of course, keep in mind that business plans are a very poor predictor of a successful business. 

Some of the most noteable contests:

TechStars Startup Madness: March Madness-style tournament bracket of 64 startups meeting the following requirements

- Haven't raised funding of $250,000 or more and haven't generated revenue of more than $250,000 in a single year.

- Have a live, usable public site or an accessible demo on their home page

- Have not already been in the TechStars program - this is not for TechStars companies or alumni companies

- Must be an internet, software, or hi-tech company

Global AWS Start-Up Challenge: a way for promising start-ups to get noticed and compete for an opportunity to win up to $100,000 in cash and AWS credits. Eligible start-ups that are using the AWS cloud computing platform can submit an entry into the contest which describes their business plan and use of AWS paid services

The Buckminster Fuller Competition: The Buckminster Fuller Challenge is an annual international design challenge awarding $100,000 to support the development and implementation of a strategy that has significant potential to solve humanity's most pressing problems. It attracts bold, visionary, tangible initiatives focused on a well-defined need of critical importance. Winning solutions are regionally specific yet globally applicable and present a truly comprehensive, anticipatory, integrated approach to solving the world's complex problems.

William James Foundation Socially Responsible Business Plan Competition: The William James Foundation (WJF) seeks to identify, promote, and support entrepreneurs who have financially viable ways of integrating social and/or environmental sustainability into a for-profit business model. There is a processing fee of $50 to enter the competition. Competitions have three rounds: Executive Summary, Full Plan, and Public Presentation.

Participants: Entrants can be of any age or from anywhere in the world. The business must either not have started yet, or be in start-up phase.

Award: The cash and in-kind prizes as a whole are worth more than $100,000

NUDITY

If all else fails, you can always take your clothes off.

(Photo from laverrue)

  One of the first steps I took when I joined ff Venture Capital was to launch a lending library (the original social media). It's a very cheap employee benefit and more important, a way to promote a culture of both learning and knowledge-sharing. I think every company would benefit by having a small lending library.  I moved into many of my old textbooks/research materials from writing my book.

I asked our intern Franklin Bi to research technology tools to track books checked in/checked out. He did a little research, but we didn't find any good tools. We also jointly decided that the overhead cost of setting up and managing the system wasn't worth it. It's much easier for the library to operate strictly according to the honor system.

I also asked Franklin to write up a one-page summary of the rules of the library, which we could post next to the books. 95% of people would have written up 5 bland bullets and moved on to the next project. Franklin, to his credit, did the assignment with style, wit, and creativity. I've attached below what we printed out and put next to our lending library.

When I was applying to business school, I asked my colleague at Bear Stearns, Michael Margolis (now of Maric Capital Fund L.P.) for some advice. He observed that successful people "do the mundane in a sublime way". Franklin's execution of this project is a great example of that principle in action.

ff Venture Capital Lending Library Guidelines

Please borrow no more than one (1) item at once
"Most people have no idea of the giant capacity we can immediately command when we focus." - Tony Robbins

Recommended borrowing period: two (2) weeks
"I would rather have a good plan today than a perfect plan two weeks from now." - General George S. Patton

Treat these books with regard for future readers
"Some books are to be tasted, others to be swallowed, and some few to be chewed and digested." -Francis Bacon

Recommend and share books you like with others!
"An investment in knowledge always pays the best interest." - Benjamin Franklin

By the way...
please feel free to contribute books from your own collection!

If you plan to retrieve your book(s) later, remember to write your name inside the cover.

If you would like to donate a book permanently, write "ff Venture Capital" inside the cover.

If you read this whole list of guidelines and
it was the most leisure reading you've done in the past week,
please borrow a book.

"Always read something that will make you look good if you die in the middle of it." - P.J. O'Rourke

Photo source: http://www.flickr.com/photos/uberculture/2058870277/sizes/z/in/photostream/

I hope you can join us at the HBS Club of NY / HBS Angels of NY event below on Thursday, June 16:

Click here to make a reservation

From enormous marketplaces such as eBay and Craigslist, to emerging sectors such as social lending (Zopa), peer-to-peer travel (Airbnb) and car sharing (Zipcar or peer-to-peer RelayRides), Collaborative Consumption is disrupting outdated modes of business and reinventing not just what we consume but how we consume. New marketplaces such as TaskRabbit, ParkatmyHouse, Zimride, Swap.com, Zilok, Bartercard and thredUP are enabling "peer-to-peer" to become the default way people exchange - whether it's unused space, goods, skills, money, or services - and sites like these are appearing everyday, all over the world.

Until recently, most Internet innovation has centered around improvements -- big improvements, but incremental ones nonetheless -- to existing business models and familiar social structures: Amazon is the ultimate retail destination, Zipcar the ubiquitous rental-car agency; Meetup is a sewing circle on steroids.

But what if these institutions, valuable as they are, are just a transition state on the way to truly new modes of communication and exchange, and even a new emphasis on values other than profit-and-loss? Our session looks at the rise of socially enabled platforms that blend commerce with community, where reputations trump credit ratings, and where hyper-distributed service businesses outgrow traditional monolithic suppliers.

Technology is changing the way we do business; crowd sourcing and social networks have become a default security system. Redistribution of resources and services through social platforms is creating new business and new revenue streams by monetizing previously underutilized assets.  Ebay, Etsy, AirBNB, and many more rapid growth businesses are redrawing the map of trade. Come and meet some of those on the front line.

Panelists
Adam Berk, founder Neigh*borrow
Adam Black, founder KeyWifi
Jeff Stewart, founder Lenddo / Mimeo
Cameron Tonkinwise, Associate Dean for Sustainability, Parsons, The New School
Moderated by Roo Rogers, President of Redscout Ventures, and Co-Author of What's Mine Is Yours

Adam Berk, Founder of Neigh*borrow

Mr. Berk graduated from Emory University and began his career trading equities (not tools or electronics). He created neigh*borrow after realizing that he wanted an easy way to share with those around him and that others probably did as well. Adam has a great affinity for travel, photography, golf, movies, music, and surfing (ok fine, web surfing). In addition to helping you save money and conserve our environment, neigh*borrow allows him to share HIS FAVORITE THINGS, with HIS FAVORITE PEOPLE, in HIS FAVORITE PLACES all over the WORLD!

Adam Black, Founder KeyWifi.com

The twin interests of sustainability and the realities of human nature interested Mr. Black from an early age. After studying Biotechnology at London University, he worked in over 18 countries on the production side of the film business, setting up desert camps in Jordan, managing huge projects and teams from India to Argentina. After twenty years out of The UK, he emigrated to Australia to produce award winning marine natural history documentaries with the hope of saving fragile ecosystems. He also developed economically and environmentally sustainable housing projects in the UK, Australia, and most recently in upstate NY. Mr. Black came to New York in 2005, founded SustainabiliTV.com, producers of 'The Business Case for Sustainability' and produced several important films in Darfur and Nepal. In 2009 he founded KeyWifi a web company that enables redistribution of Internet bandwidth through a web-based platform. KeyWifi enables the cost of access to be reduced for everyone, with significant ramifications for low-income families, the developing world and just about everyone you know. KeyWifi is the world first peer-to-peer wifi exchange platform; it launched in May this year at TEDxEast in New York.

Jeff Stewart, Founder of Lenddo

Over the last ten years Mr. Stewart started over a half dozen companies that employ over six hundred people. One of them, Mimeo.com, is a Deloitte Fast 50 Technology company that has made the Inc. 500 twice in the last three years. A serial entrepreneur, inventor and investor specializing in technology-enabled growth businesses, Mr. Stewart is the founder of Urgent Group, a venture development firm and the founder and managing director of Geometric Group, LLC and Urgent Ventures, LLC, both focused on seed-stage investments. Mr. Stewart is also a co-founder of Belgrave Trust; a carbon offset service tailored to the needs of high-net-worth individuals. Jeff's latest venture is Lenddo, which seeks to improve the lives of millions by helping community members use their online reputation to access financial services, which in turn fosters economic development. Lenddo was started with the belief that professionals in emerging markets should have access to the same high level of financial products and services as are enjoyed in more mature financial markets such as Japan, Germany, United Kingdom and the United States.

Cameron Tonkinwise, Associate Dean for Sustainability, Parsons The New School for Design

Previously the Co-Chair of the Tishman Environment and Design Center, which oversees the New School's Environmental Studies degreeprograms, Mr. Tonkinwise came to the New School from Sydney, Australia where he was Director of Design Studies at the University of Technology, Sydney, and Executive Director of Change Design, formerly known as the EcoDesign Foundation, a think-tank focused on design-enabled social change toward more sustainable futures. Mr. Tonkinwise's current research concerns lowering societal materials intensity by decoupling use and ownership - in short, sharing.

Moderator:
Roo Rogers, President of Redscout Ventures & co-author 'What's Mine Is Yours'

Working at the intersection of entrepreneurism and social responsibility for the majority of his career, Mr. Rogers most recently served as the co-founding partner of OZOlab, the fund and incubator for environmental start-ups, and the former CEO of OZOcar, the eco-friendly car service. In 2004, Roo founded we:nited magazine - a youth politics magazine and website. In 2000, he launched Drive Thru Pictures and Drive Thru Films, the award-winning British and American film company devoted to communicating social issues to mass youth audiences. After working for Medecins Du Monde/ UNICEF in South Sudan, Mr. Rogers co-founded UNITY TV, and a start-up initially funded by the United Nations and the BBC. Roo is the co-author ofWhat's Mine is Yours: The Rise of Collaborative Consumption, delving into understanding the exploding economy of collaborative consumption. He received his Bachelor's degree from Columbia College and his Master's degree in Economic Development from University College London. He sits on the boards of Medecins Du Monde UK (Doctors of the World) and the Bronx Community Charter School.

Thursday, June 16th

Location:  Pillsbury Winthrop, 1540 Broadway, New York at 45th Street
Time: 5:30 Registration and Reception, 6:45pm Program
Cost: $15 Members; $40 Non-members & Guests; please register by 3:00pm on June 15th
Sponsor:  Pillsbury Winthrop Shaw Pittman LLP, Harvard Business School Club of New York, Harvard Business School Angels of New York

Click here to make a reservation

I enjoyed participating in last week's Capital Roundtable Private Equity Masterclass on "Best Practices for Sourcing Quality Deal Flow & Developing New Business" (May 26^th, 2011). Our star intern Adam Kalamchi took detailed notes, below.

View more presentations

Chairman's Keynote: How to Win -The Five S's of Successful Deal Sourcing

Richard J. Fitzsimmons, High Road Capital Partners

(Presentation included above)

Notes:

Most funds have ~7 deals total, or about two deals per year. Finding the right deal can make or break that particular fund.

Sources: identify the right places out of innumerable sources

Companies
Of 5 million companies registered with the IRS, 4 million are S corp. pass throughs (individual owners); 1 million C corp (shareholders)

Owners
They prefer deals represented by intermediaries because it signals the owner is willing to sell. Otherwise, private owners tend to have unrealistic expectations or an arbitrary sale price expectation.

Intermediaries

Banks, brokers, Advisors
They have the confidence and trust of the business owner

Deal aggregation websites
Increasing in popularity, trying to increase market efficiency.
He thinks it's a tool, but will not displace traditional M&A
PE-Nexus, AxialMarket, CapitalSphere, DealMarket, MergerID, etc.

Fundless sponsors
Good at finding unusual opportunities at good prices

Estimated 100 - 200 total entities
Friends & family - basic networking

Strategies: how do you generate returns
He doesn't believe you can build sustainable proprietary deal flow; they believe in pro-active, outbound deal sourcing effort

After you've applied all of your filters, surprisingly hard to find under-priced assets, especially when intermediated

Signature: what makes you unique and how do you get people to recognize that?
Must build and promote your reputation / expertise

Flow is a function of reputation and share of mind in target market

Signature and messaging will vary by market and audience, but must be internally consistent

Spreading the word: gain awareness of your firm; define and spread your message
Email is quite effective at keeping top of mind. Build and maintain large email database.

Phone is slower and less scalable, but good quality and intimacy

Industry events have good value for face time in such a personal business

LinkedIn is increasingly effective for companies in addition to individuals

Statistics: must quantitatively measure your deal flow process in order to improve
Use statistics to test anecdotal hunches

Benchmark yourself to overall market activity

Panel 1: Creating The Right Deal Flow -- Creating & Managing Sustainable, Replicable Strategies

Moderator

Richard P. Prestegaard, High Road Capital Partners

Panelists

Robert P. Bennett, GroundSwell Capital LLC
David C. Glickman, Resilience Capital Partners LLC
Luke Johnson, Platinum Equity LLC
Robert B. Landis, The Riverside Company
Robert E. Michalik, Kinderhook Industries LLC

Notes:

Brokers tend to show deals to the people that are top of mind / they have seen recently, so staying visible and in touch is important
Being responsive to brokers respects their time, especially when you are not interested in a deal so they can move on to a higher potential buyer

Question: How are you organized? How do you align incentives?
Larger funds tend to have industry-specialized sourcing, but less so at the smaller funds due to lack of scale
Riverside shares deal-based compensation, so that the sourcing team works together and it's not zero sum in terms of hoarding contacts

Question: Where do the panelists want to improve their current sourcing?
Social media

Having flexible, searchable databases accessible on mobile devices
Move from partner- or people-oriented function to more institutionalized, systematic, and scalable

Question: How do you handle in-bound emails?
Platinum has a single individual who receives and sorts through inbounds, uses discretion if and how to react
Resilience responds every briefly to all credible emails to maintain their brand.

Question: What portion of your deal flow is proprietary?
Panelists do not believe there is sustainable truly proprietary flow (though I think they are defining this too narrowly as sales with only 1 buyer)
Platinum looks at as direct- (20%) and indirect-sourced (80%), not proprietary vs. non-proprietary. They are looking to improve self-creation of deals.
Riverside defines proprietary as any sale less than ~3 buyers involved
Kinderhook looks for the "broken" auctions that didn't get the right attention of the PE community

Question: What fee structure do you use for proprietary deals?
Truly proprietary deals have no fees - you are interacting directly with the seller
No negotiation on fees if there is an intermediary
Kinderhook pays 1% or a book and 2% for a phone number under the assumption that if there's a book created there are other buyers

Question: Thoughts on how to use social media to generate deal flow?
CareerAmp
Branch Out

The feeling is that they've started, but recognize there is value they are not tapping
Some are skeptical, especially how to drive quality vs. just more quantity

Question: If you are starting a business development group, what are the top three things you should do?
Focus, don't be all things to everyone, focus on key markets

Know what your company wants so you can speak as a decision-maker and not just a broker

Panel 2: Positioning Yourself to Win - Four I-Bankers Explain How to Compete for the Good Deals

Moderator

Richard J. Fitzsimmons, High Road Capital Partners

Panelists

David Deutsch, David N. Deutsch & Co. LLC
Thomas P. O'Connor, Berkery Noyes & Co. LLC
John L. Tye, Edgeview Partners LLC
Harold J. Williams III, Dickinson Williams & Co. Inc.

Notes:

Question: When you start a process, how many buyers do you reach out to on average? Most? Least?
Start with a hit list of several hundred strategic and financial buyers. Articulate thesis for each counterparty, then run ideas and work with clients to narrow the list. End up approaching 20-30 strategic and 50 financials.
To maximize value and sale price, wider net is better
There is a lot of un-invested capital sitting in funds and outside-in it is hard to tell the internal dynamics, so casting a wide net increases chances of a good outcome

Question: How many PE firms are in your databases?
Several thousand---- then narrow down based on objectives and focus etc.
Don't be "Just Another Middle Market Buy-out Fund (JAMMBOF)"
Opportunistic, no focus

Question: How do generalist PE funds differentiate and get in the advisers list?
Good funds pro-actively stay in touch with bankers
Understand what each bank's coverage model is. How do they prioritize and assign responsibilities? Then develop personal relationship with whoever is covering you.
Staying on the buyers' lists is based on how well you conduct yourself in the diligence processes, "beauty contest"
Banks are aware of your funding situation and your portfolio / investment thesis. More likely to attract deals if you have a good specialty / strategic thesis vs. being just opportunistic.
"Strength and length of relationship"
Show enthusiasm, ask questions, express interest directly that this is one of the deals in your sweet spot
PE funds can reach out to companies directly, but you need to manage and related personalities this carefully. Certainly has upside if the business owner through these communications develops a preference for a specific PE fund. Once the process starts officially, need to follow protocol through the bankers; it really ticks off the bankers if you interact directly with the CEO.

Question: How do PE funds differentiate in the LOI phase?
Bring substantive content and 'meat on the bone'
Everything you have done until that point builds your credibility
Show that you have fully leveraged the data room
Having unanimous buy-in from your own investment committee is important. Do not want surprises, as deal gets closer to closing, and then suddenly the investment committee reads the documents more closely and asks questions that should have been asked earlier.

Question: What is the discount you get for being the preferred buyer?
Don't really give discounts, but call the preferred buyer and tell them the terms they need to match to close the deal.

Question: Which corporate deal sources have the most effective pipelines?
Many, many approaches
Apple's lead is overly friendly and kind
Some have interns periodically call to check in
"I believe there is proprietary flow, since he's seen buyers who consistently are single-bidders."
If you are known as someone who is truly helpful, you will always get calls with an opportunity or just for advice

Teten question: What will the impact be of deal aggregating websites (Axialmarket, MergerID, PE-Nexus, PEGBASE, CapitalSphere, DealMarket, BizBuySell,) on the investment banking industry?
Tye: they are still evaluating and thinking about how to make it value-creating
Some of the others haven't seen them impact their markets
They will get calls from banks if they develop trust not to front-run processes

Panel 3: Finding Hidden Gems - Four Proprietary Deal Flow Experts Discuss How They Advise Their Clients

Moderator

Richard P. Prestegaard, High Road Capital Parnters

Panelists

Zubin Avari, Charter Oak Equity LP
Christopher A. Gebelein, Private Equity Growth Advisors LLC
Sven A. Kins, Cook M&A Advisory Services
Matthew S. Wells, PE-Nexus LLC

Notes:

Question: When clients reach out for help, what are they asking?
PE clients don't know whom to call within corporations to discuss something like a divestiture

PE funds get busy and sometimes periodically reach out and then fail to follow up. Advisers can help by rounding out their contact list and then having a consistent cadence of following up and messaging with business owners. Many middle market firms don't have enough business development capacity.

Question: In divestitures, which comes first, the buyer or the seller?

Private Equity Growth Advisors:
Focuses on the corporate client who has the need to sell. It's very hard to just call corporations and just ask what they have for sale. These communications are largely ignored. The better approach is to try to solve the problems of corporate development people who want to grow their businesses.

It takes corporate executives a long time to decide to divest. Even once the decision is made, the business have been neglected and getting a healthy auction going are quite low. There are lots of risks that the business deteriorates during the sale process. So, there is a sense of urgency.

They try to have a 60-90 day process. Much of this is done for quarterly earnings management reasons. This can be proprietary since there is just no time to run a process.

Accounting and incentives systems drive behavior within the corporation and you must be aware of this as a buyer (e.g., the manager won't realize the loss which will affect their business unit's reporting and therefore their personal bonuses).

Question: In the above, how do you convince potential corporate seller not to engage in a full process with bankers and advisers?
Many times there is not enough time due to quarter end or the business itself will not last throughout a protracted sales process

Of course, the larger the deal, the high the chances the corporate seller does hire a banker to be able to justify price to their board

They stay close to corporate development officer to understand all of the non-price items that are important to them. This is important for getting their clients into the final bidding round.

Question: What are some issues with divestitures?
Financials (e.g., balance sheet) are not held at the business unit or asset level

Sellers may not be as sophisticated in terms of understanding how PE funds think and operate

Question: How does PE-Nexus work?
This is a technology-enabled solution to compliment the existing, traditional process

Casts a wider, more efficient net than existing channels with a more robust database and a more detailed search function

Question: Is the PE-Nexus platform for all market segments?
The platform is really for the middle market, not KKR / Goldman Sachs

Question: How does Charter Oak Equity source their deals?
They are a sponsor and they act as if they were investing their own capital

Certainty to close is critical before they take deals to the PE groups

They are also so aligned with the PE group in terms of reputation and returns that they like repeat business with the same groups

Question: How do each of the panelists get paid?
Charter Oak Equity LP
Fee at close
Part of management fee
Part of carry

Private Equity Growth Advisors LLC
Some clients pay a monthly retainer which gives PE fund credibility with corporate contacts
Success fee

Cook M&A Advisory Services
Nominal retainer
Success fee upon closing
Hope to be part of the add-on process if part of growth plan

PE-Nexus LLC
Straight subscription fee from buy-side clients
No success fee
No charge to the sell side, their currency is the data

Keynote Presentation 2: Virtual Handshake

You can download the slides at teten.com/deals .

Presenter:
David Teten, CEO, Navon Partners LLC

Notes:

People are increasingly online and connected, but we are still at the very early stage of social media having a material impact on how we do businesses
Our kids are the future business leaders and they carry the habits they are developing today into their future business habits
There is an incredible amount of data leaked online
Need to stay top of mind
Diverse networks have much larger value than more focused networks
Social media is a low cost way (time and money) to extend the reach of your network
Leverage multiple media formats - this increases trust. More likely you hit their preferred channel. Also allows people to do diligence ahead of time rather than a cold meet.
Online communities are great sources of free consulting services

Five next steps
Google yourself and see what people are saying about you
Be a data hound
Reduce email use: move communications to thinks like wikis that are better stores of information and less re-emailing (social text is a good corporate wiki)
Find people to meet online - zoominfo aggregates all publically available information.
Join the right clubs

Question about companies that help manage email / contacts :
rapportive - pulls in all publically available data when you email someone from gmail
xobni - gives you insight into frequency of interaction

Panel 4: Alternative Deal Resources - Four Other Advisors Discuss the Value They Add to the Process

Moderator

Robert J. Fitzsimmons, High Road Capital Partners

Panelists

Howard M. Berkower, McCarter & English LLP
Jake E. Lilie, Dynamic Data Inc.
Nadim Malik, Sutton Place Strategies LLC
Roland W. Tomforde, Broadgate Consultants LLC

Notes:

Question: How can firms use their technology to improve deal flow?
Excel is a way of the past, everyone is using CRM now, generate reports for Monday morning meetings
Deal Dynamo
Salesforce - lower priced option
TheNextRound
Equity Works

Social media is a great way to personalize your firm
LinkedIn, Twitter, Facebook

Question: How can firms use data to improve deal flow?
Know your market penetration, share of target market

Know the details about what is falling through the cracks - which deals did you miss and why?

90% of their effort is to understand how the buy and seller get / got connected

Question: What are other ways firms drive good deal flow, especially since some are publicity shy? Should they be shy?
Roland agrees that PE firms are shy

There are ways to create localized branding e.g., in your industry

Each opportunity must been a seen as an opportunity to underscore your key messages

Question: What is an ideal level of email traffic?
Don't wear out your welcome, but hard to pinpoint a specific number. Need to avoid people instinctively reaching for the delete key.

It's been very exciting to see such a strong response to our recent research study on "Best Practices in Private Equity and Venture Capital Deal Origination", published in the Winter 2010 Journal of Private Equity. 

To our knowledge, this is the first systematic study on this topic; we have not found any other in-depth research on origination by either academics or practitioners. In leading this research, we are leveraging our experience working with a wide range of top-tier investors and our proprietary dataset of the origination practices of over 150 institutional investors globally with whom we have conducted in-depth interviews. We also have presented on our research to dozens of conferences, funds, and investment banks globally, gaining additional insight from audience feedback.  My coauthor Chris Farmer of General Catalyst provided critical insight, particularly on the venture capital industry.  Our research associates, Yujin Chung (Andreessen Horowitz) and Neha Kumar (Anklesaria Group), provided invaluable quantitative and analytical support.  I also want to thank my former colleagues at global research firm Evalueserve for their help in conducting approximately 1/3 of our surveys, and for additional background research.

A wide range of publications has now featured our research:

- 3/29/11: Business Insider, Five Best Practices In Sourcing Investments

- 3/29/11: Axial Market Blog, Where the Deals Are - Best Practices in Sourcing Investments

- 3/14/11: Bloomberg Radio, Teten Discusses Private Equity Deal Origination (Audio file)

- 1/13/11: Pensions & Investments, Study: PE firms spend hours on investments they'll avoid

- 1/3/11: Global Corporate Venturing, Chasing the rabbit: deal origination best practice

- 12/6/10: Financial News/Private Equity News, Four Ways Buyout Funds Can Increase Dealflow

- 12/10: Mergers & Acquisitions, Where are the Deals? Private Equity Funds' Best Practices in Sourcing Investments

- 10/5/10: Institutional Investor, Where Are the Deals?

- 9/6/10: Buyouts News, Need to Meet: David Teten

- 6/10: Harvard Business Review, Time for Investors to Get Social

I've embedded below the sanitized slides from a presentation we've made on our research to some investor conferences and privately to various private equity funds and investment banks.

Peter Lehrman of AxialMarket posted this must-read Powerpoint on the evolution of private equity deal sourcing.  I definitely agree with the points he makes here.  Most interesting are his estimates of the cost for different methods of deal sourcing.  We discuss in more depth a lot of these ideas in The Virtual Handshake.

I hope you can join me at the program below, which is very pertinent to what we're building:

The Emergence of Big-Data Analytic Solutions

At this free half-day, joint program of the New York Technology Council and The Data Warehouse Institute, we will explore the rapidly growing field of "big data" analytics.
When: Thurs. Dec. 9, 8:30 AM - Noon
Where: The New Yorker Hotel, 481 8th Avenue

Click here to register

"At this half-day, joint program of the New York Technology Council and The Data Warehouse Institute, we will explore the rapidly growing field of "big data" analytics.  We are pleased to welcome Mr. Merv Adrian -- renowned industry analyst, ADBMS and Analytic Platform expert -- as our keynote presenter and facilitator.  Joining Merv to explore this topic will be esteemed guests including Lisa Terry, Director of Information Technology at AutoZone."

UPDATE: you can download much more details from Merv Adrian's presentation here.

Most private equity funds (and the equipment finance industry) are well behind the VC industry with regard to their use of social media. Jeff Bussgang, General Partner, Flybridge Capital Partners, calculates that of the approximately 1,000 venture capitalists in the US actively seeking deals, 10-15% blog.  Sarah Tavel, Senior Associate, Bessemer Venture Partners, calls this blogging and posting of internal analyses "venture capital's freemium model."

We think that increasing numbers of private equity investors will devote more energy to their social media efforts. Private equity investing is a relationship business, and the only relationships that really matter are with the relatively small number of LPs, entrepreneurs, executives, and intermediaries.   As more of our personal relationships move online, social media becomes a very cost-effective way to strengthen a firm's corporate relationships.

Among the few PE funds with an outreach in social media I would include Duane Street Capital, 2xPartners, Healthpoint Capital , and Riverside Company. Another I recently learned about is MCM Capital.  Bobby Kingsbury, Business Development Officer, MCM Capital Partners, was kind enough to provide a case study of his efforts in this area. I interviewed him via email:

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Q. What is your social media strategy?

At MCM Capital Partners we have implemented Facebook, LinkedIn, an RSS feed, and a weekly blog into our website in order to promote our brand, increase search engine friendliness, expand our deal referral network, and enhance relationships with those already in our network. Additionally, we are tactically using social media tools to augment our communications to our current LP's, prospective investors, entrepreneurs operating businesses within targeted industries, investment banks and intermediaries.  Each communication method employed and its content is viewed through the lens of "how does this help our firm" and "how does this improve the likelihood someone will find us?"

Although we are still learning the intricacies of social media, we have been making extensive use of social networking sites to announce LBO transactions, promote our blog and email newsletter, recruit and evaluate potential CEOs for portfolio companies, as well as develop and create new relationships within the M&A community.  Concurrently, we are using our blog to help with search engine optimization, place new contacts into our CRM (Goldmine), and to differentiate ourselves from other firms in our industry by providing value added content to our website.

For SEO purposes, we chose to focus on searches on the following terms: micro-cap private equity fund, leverage buyout, Cleveland based private equity, lower middle market, leverage buyout firm, management buyout, etc. We chose these terms based on relevance and by researching our SEO rank on each search engine, then targeted those keywords in which we ranked in the top 100.

We chose to use the top 100 because it was an achievable goal. Given our time budget of 1 blog post per week, and given that it's most important to be on page 1 of Google (slots 1-10), we thought that moving from slots 100 and below to slots 1-10 was much more doable than moving from slots 101 and above. The largest behavioral jump, measured as a percentage-change, is from the top of page 2 to the bottom of page 1. According to Chitika, a search based online advertising network, going from the 11^th spot to the 10^th generates a 143% jump in traffic, proving a very small percentage of users click through to the second page while searching online. Ultimately, we want our website to be ranked in the top four for these terms, as the top four terms in a Google search account for 70% of all web traffic.

Here are a few of the steps we have taken:

Weekly Blog:

Embedded in our website through WordPress, we started a weekly blog about four months ago. We use our blog to help with our search engine optimization, automating the addition of new contact information into our CRM, as well as providing value-added content to our readers (LP's, entrepreneurs, investment bankers, intermediaries, etc.). In regards to search engine optimization, we created 5 blog categories (Best Business Practices, Private Equity Related News, MCM Perspective on Macro Economic Conditions, Investment Perspectives, and MCM Specific News) relevant to our target audiences, as well as a list of at least 20 keyword phrases to be incorporated into our posts. After a blog is written, we use Friendfeed to automatically post the new blog to our company Facebook, Twitter, and LinkedIn pages. The RSS feed helps track new readers and automatically places them into our CRM after readers fill out the required information. In addition, in order to comment on a particular blog we have implemented a form. Visitors fill out the form and their information is again directly placed in our CRM, helping us manage new contacts and track new visitors to our blog.

LinkedIn:

We are in a relationship based business, and we need to leverage those relationships. Each of us have our own LinkedIn profile and MCM also has a company profile page. I have encouraged each of my colleagues to spend 5 minutes a week building up their network with value added contacts. In five minutes they can add 10 to 15 new connections, which increase our reach and will enhance current relationships. We have added a WordPress blog widget to each of our profile pages and our company profile page in order for our contacts to easily view each new post creating more top of mind awareness for MCM. Any updates or deal closings within our firm are also sent out to each individual and each group in our network through LinkedIn's own weekly update email. Additionally, LinkedIn has become a great resource to grow our list of C-level talent for our future and current portfolio companies.

Facebook:

We created a Facebook page for our firm where we post our acquisition criteria, MCM updates, current ongoing searches, recent blog posts, a calendar for visitors to keep track of important dates such as our annual CEO summit and shareholder meeting, pictures of portfolio companies, and we have also added a tab which allows visitors to sign up for our email newsletter under 'Join My List'. Posting regular updates relating to our business and activities reminds our friends or followers who MCM is, what we do and either to use our services or refer one of their friends or colleagues who might be looking for an equity partner.

Monthly Email Newsletter:

We send out a monthly email newsletter using Constant Contact to over six thousand investment bankers, lenders, intermediaries, and current and potential LPs every month, keeping them apprised as to types of businesses we are looking for as well as any deal announcements or updates within our firm. We have placed links to Facebook, LinkedIn, and an RSS feed in our newsletter along with a link to each of our personal LinkedIn pages next to our name and email address. We also added a section at the bottom of the newsletter for blog post of the month to help promote our blog. After a newsletter is sent, we click on the LinkedIn, Facebook, and Twitter widgets on the top banner of the email and tweet it, Facebook Like it, and add it to our LinkedIn page in order to reach our contacts that may not have received the newsletter via email. Using Google Analytics, we have seen a dramatic spike in traffic to our site each month the day of and a few days after our email is sent, demonstrating the efficacy of the newsletter.

Email Signature:

Everyone at the firm has links to our RSS feed, LinkedIn, and Facebook accounts embedded in their email signature to help create more awareness and again drive traffic to the blog and our social networking sites.

Google Analytics

We have placed Google analytics into our website in order to monitor traffic, referral sites, keyword searches, unique visits, etc. I go over the statistics every month to see where traffic is coming from, where we rank with certain key terms, how long visitors spend on certain pages, and who exactly is coming to the website, in order to adjust our SEO campaign, write relevant blog posts, and provide value added content to our website.

What results have you seen so far?

While neither traffic nor time spent on our site is the true measure of efficacy of our social media campaign, it indicates we are increasing brand recognition and awareness. The real measure of success while we continue to develop our campaign will be transforming our brand recognition and awareness into an increase in deal flow, attracting new investors and talent to our firm, developing relationships with entrepreneurs in our target markets, and helping separate our firm from our private equity brethren. It is too early to provide definitive metrics on increased deal flow or inbound inquires from LP's attributed to our social media campaign, but we are confident that social media will continue to play a huge part in the marketing success of our firm.

That being said, I will provide a few metrics we have been tracking since the inception of our social media efforts in July of 2010. Our deal flow increased by 150% in total from July to October, but we cannot say it was solely attributed to social media. Clearly there was pent up demand over the prior two years making it difficult to measure the efficacy of our campaign thus far. Further, we have only had two inquires from LP's, but coming from a base of zero any number is a huge jump. Overall traffic to our site has increased 14% on average each month. Referral traffic, (traffic coming from other websites including our blog, LinkedIn, Facebook, and email newsletter) has increased 119% over the last three months, and visitor's average time on our site has increased from 1 minute and 32 seconds to 3 minutes and 5 seconds.

Some other quick stats over the last 30 days derived from Google Analytics: we have averaged over 51 absolute unique visitors to our site per day (80% of our total traffic came from new visitors who have previously never been to our site), visitors averaged 3.75 pages per visit, and 69% of our visitors came from search engines (Google, Yahoo, and Bing), 18% came directly and 13% came to our site through our blog or social networking sites.

Most of our traffic is from new visitors:

Search engines are critical for our traffic:

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Q. What are MCM's professionals' policies on inbound LinkedIn inquires from:

1. people you don't know at all

A. If we do not know a person, but are familiar with their firm and they are currently an employee we will accept their invitation. If we do not know the person or their firm we will check their profile and company's website to see if we would have a mutually beneficial relationship and accept or decline the invitation accordingly. Complete strangers, when we do not know them and have not heard of their firm will always be ignored.

2. people you don't know but want to know (e.g. potential LPs)

A. LPs or people we want to know who contact us will almost certainly be accepted. We will follow up with a note and try to schedule an introductory call in order to provide more information on our firm.

3. people you barely know (met once for 2 minutes) -

A. Same principle as with people we don't know; we will see how much utility the relationship will have for our firm and accept or ignore the request accordingly.

We generally will accept invitations from most firms, as the contact or their network will most likely be beneficial for MCM. What most people do not know is that anyone can look at your network (with the default LinkedIn privacy settings) and then inundate your contact list, with inbound inquires unless you change your privacy settings. At MCM we try and protect our network contacts, and have changed our privacy settings so our contacts cannot view the rest of our connections list. We continually manage the privacy settings on our LinkedIn pages to prevent any leakage of personal information and limit access to LinkedIn users not in our network.

Q. Similarly, what are MCM's professionals' policies on inbound Facebook inquiries from people in the categories above?

A. I would say it is pretty similar to LinkedIn, but at the same time anyone can Facebook-Like our page so it is a little more difficult to manage the contact list on Facebook. I monitor the page a few times a week and receive a weekly email from Facebook updating me on our page activity. Here is an example of the weekly update from Facebook:

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Hi Bobby, Here is this week's summary for your Facebook Page: MCM Capital Partners 49 monthly active users 14 since last week 72 people like this no change since last week 1 wall post or comment this week 1 since last week 63 visits this week 20 since last week Send an update to people who like this Visit your Insights Page Promote with Facebook Ads Learn more about how to update via mobile Thanks, The Facebook Team
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Q. What tool(s) are you using to pull data in from your social media system into your CRM?

A. Each CRM has its own code for forms in order for contact information to be transferred into the database. Sometimes you can manipulate the form and other times you are stuck using what your CRM provides which possibly will not encapsulate all the data you are looking to obtain. We use Goldmine, and it was a challenging process to say the least.

Q. What is your policy on adding emails to your email database; do you add the emails of everyone you meet/who emails you, or wait for people to proactively register on your site?

A. We do not add everyone we meet or everyone who emails us, but we certainly do not wait for people to proactively register on our site. At the end of the day it's a numbers game, and if we feel the person has an opportunity to add value to our fund they will be added to our database and sent our monthly correspondence, unless they unsubscribe.

Q. Who built your website?

A. Point to Point Inc., a Cleveland based interactive marketing firm has implemented our blog into our website and is in the process of transferring our entire site into WordPress. This will allow us to make changes ourselves in real time and also will allow me to control and adjust our SEO campaign as needed without having to understand or learn how to write HTML. The changes made are instantaneous and can also be undone if a mistake is made.

Q. What other tools/technologies are you using?

A. I have created an email archive page using Constant Contact in order for people to view previous communications we have sent. It's also another way for someone to 'Join our List' if they receive the communication thru a social networking site.

Q. What steps are you taking for proactive marketing, as opposed to reactive marketing? Are you proactively reaching out to your viewers on a targeted basis?

A. Everything we are doing right now with our e-marketing campaign is proactive and we are reaching out to our viewers on a very targeted basis. We know our prospective audience uses search engines and social media sites to find relevant information, so we develop content (onsite and off) that is relevant to both the engines and the users. For example, we have a blog category entitled 'Investment Perspectives' in which we share our investment theses around certain industries of interest. The investment thesis gives MCM credibility and resonates with entrepreneurs and the intermediary community, as it illustrates forethought as to the types of businesses we are searching for in a particular industry. We realize with our e-marketing initiatives we are currently thinking a little outside the box given the dynamics of our industry, but I believe we will see a paradigm shift in the not too distant future in the ways in which PE firms market to the deal community.

Q. How much time (launch and ongoing) and money has the social media initiative cost you?

A. We do not track time like a law firm, but the efforts spent to continue our e-marketing initiatives have been significant and are shared throughout our firm. It takes a total team effort to create, edit, post and continually update and monitor our blog, SEO campaign, and social media sites. I have been very fortunate to work with colleagues who understand the importance of our e-marketing campaign and have given it their full support. It has taken a lot of time and we had to learn how to walk before we ran, but I believe it will continue to be beneficial and pay huge dividends on a go forward basis. In the future I could see hiring someone full time solely to work on our e-marketing campaign, as four of our professionals collectively spend on average 15 to 20 hours a week on our social media outreach, depending on the time of the month.

Q. Some funds are concerned that increasing visibility will attract inappropriate deal flow, a deluge of job-seekers, and other people who want to suck up your bandwidth. How do you mitigate that cost of being more visible?

If we felt that the attention we were receiving was irrelevant or hampering our day to day initiatives, we would take steps to improve our process to make it more relevant to our desired audience. We have not had to deal with an influx of spam-like inquiries thus far, and truly do not anticipate it as we control our connections. Our goal through our entire e-marketing campaign is to gain relevant visibility, but I would be more than happy to spend a few extra minutes a day reviewing the inappropriate deal flow and deluge of job seekers as it means MCM is becoming more visible. It doesn't hurt to spend a little time answering a few questions or sending an email with our acquisition criteria in order to prevent inappropriate deal flow in the future. You never know where that person may end up that is seeking a job or what deal that intermediary may show you next.

Congratulations to the team at Grouply on their sale to Oodle!  I've been on the Advisory Board of Grouply since its very early days, and am an enthusiastic user.  It very significantly increase my efficiency by allowing me to monitor more online communities than I could otherwise keep an eye on. 

I have to admit I was surprised that Yahoo didn't either acquire them or copy all their functionality, given how dramatically Grouply increases the functionality of traditional Google/Yahoo groups.  However, lately Yahoo seems to be focusing much more on shedding assets (and sometimes people) than on acquiring them.

Free release below:

Oodle Acquires Grouply

Oodle announced today that it has acquired Grouply, the online hub for social groups that offers features for building customized social networking groups. Oodle, a pioneer in social commerce, is reinventing the online experience for "classifieds" by building a social marketplace.

 

The Grouply platform and the groups hosted there will continue to function as before.

 

"Affinity groups such as mother's clubs, neighborhood groups, and alumni organizations can be hot spots for trading activity," says Craig Donato, CEO and founder of Oodle. "People care about who they are transacting with and would prefer to deal with others they know or who share their interests. With over 500,000 active groups, Grouply is a leading platform for interest-based social networks and is a natural partner for Oodle."

 

The majority of Grouply's employees will move to Oodle.

 

"Oodle is the perfect fit for the Grouply team and a great place for us to continue our mission of allowing people to build groups that share specific interests," said Mark Robins, Grouply founder and CEO. "We look forward to working with our partners at Oodle to introduce some exciting new products."

 

Oodle's Marketplace lets users easily buy, sell, lend and give with other friends, friends-of-friends, and other real people in their local community. It is available on Oodle, Facebook and the iPhone. Financial terms of the transaction were not disclosed.

About Oodle

 

Oodle is a pioneer in social commerce and brings a social experience to the local online marketplace. Users can easily buy, sell, lend and give with friends, friends-of-friends, and other people in their local community. Oodle's Marketplace, which has over 14M unique monthly users, is available on Oodle (www.oodle.com), Facebook (apps.facebook.com/marketplace), iPhone & Android phones (www.oodle.com/mobile) as well as dozens of other local partner marketplaces. Oodle is available in the United States (www.oodle.com), Canada (canada.oodle.com) & UK (www.oodle.co.uk).

About Grouply

Grouply is pioneering the "social group" - a new type of online community that combines the best features of social networks and online groups. Social groups offer the social interactivity, media sharing, and modern design of social networking sites like Facebook; and the rich discussions, popular email interface, and people-discovery opportunities found in traditional online group systems like Yahoo! Groups. Grouply gives existing Google (NSDQ: GOOG) and Yahoo! (NSDQ: YHOO) Groups an "extreme makeover" including a fully customizable website, and active Google and Yahoo! Groups users can access all their groups in one place on Grouply.