[REPLAY] DealCloud - Ben Harrison (Dealcloud), (S3. Sponsored Insight)

This Sponsored Insight features Ben Harrison, Founder and Co-President of DealCloud, our sponsor for Season 3 of Private Equity Deals. Ben discusses how DealCloud's vertical software supports alternative investment professionals through deal sourcing, relationship and pipeline management, and workflow efficiencies. We are incredibly grateful of DealCloud for sponsoring Private Equity Deals, and we are eager to highlight their value to the alternative investment community. Learn More Follow Ted on Twitter at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access Transcript with Premium Membership https://capitalallocators.com/signup Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠ https://thepodcastconsultant.com/)

• 0:05Speaker 00

  Hello, I'm Ted Seides and this is Private Equity Deals. Middle market businesses are where the real action takes place. Around 200,000 businesses in the United States fall into the middle market size range, generally defined as generating revenue between $25 million and $1 billion. These businesses collectively employ 50 million people, or almost a third of the US workforce, and represent 2/3 of total US private equity deal value. Big deals may grab the big headlines, but a lot of action in the economy and private equity industry takes place in the universe of middle market businesses. Season one of Private Equity Deals shared deals from eight well-known GPs.

• 0:50Speaker 00

  In season two, we discussed eight well-known companies bought by private equity firms. We can't begin to cover the massive middle market in just eight deals, but in season three, you'll get a tiny sliver of what the middle market is all about.

• 1:04Speaker 01

  All opinions expressed by Ted and podcast guests are solely their own opinion and do not reflect the opinions of capital allocators or their respective firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Past performance is not indicative of future results. Clients of capital allocators or guests may maintain positions in securities or managers discussed on this podcast.

• 1:27Speaker 00

  Today's sponsored insight features Ben Harrison, founder and co-president of Deal Cloud, our sponsor for season three of Private Equity Deals. Ben discusses how Deal Cloud's vertical software supports alternative investment professionals through deal sourcing, relationship and pipeline management, and workflow efficiencies. We're incredibly grateful to Deal Cloud for sponsoring Private Equity Deals and are eager to highlight their value to the alternative investment community. Please enjoy my conversation with Ben Harrison. Ben, thanks so much for joining me.

• 2:06Speaker 02

  Ted, thanks for having me. Glad to be here.

• 2:08Speaker 00

  Well, I'd love you to take me through your path to creating this company.

• 2:13Speaker 02

  I started out as an analyst, working in investment banking first, primarily doing sell-side M&A transactions. We did a lot of work for the private equity community on sponsor-based deals, and we had a lot of founder-owned companies that were selling themselves into the sponsor community as well. And then spent time working for a private equity firm, doing the opposite, not selling companies, but trying to find ways to convince founding teams or investment bankers that were representing companies to sell those businesses to us and develop strategies to grow.

• 2:53Speaker 02

  And during those early years, got some, worked for a number of great firms and franchises and got some exposure to the technologies that we were using to support those businesses. And what we had done is we had gone out and we had bought what was available on the market at the time. And there were varying degrees of products you could buy that did things like CRM or pipeline management, but you had a lot of actually really old technology solutions from the big original software players, the SAPs, Norah Coles of the world. And then this time, you were really just starting to get the first wave of cloud technologies

• 3:37Speaker 02

  that were available, like Salesforce, NetSuite, and others. When they developed their products, they developed them for traditional operating models. So if you run a sales organization, or you run an industrials business, or retail company, buying generic products that were built for a traditional operating model worked really well. But when you think about what the dealmakers do every day, the advisors and the investors and the community that works alongside those individuals in support of the transactions, really, it's not a traditional business model. It's not a C-suite with series of functional and operational divisions of the company.

• 4:22Speaker 02

  You have usually a bunch of partners, senior leaders that run the firm and oftentimes own the firm too. They tend to be prolific in terms of sourcing, originating, and developing business for the firm. And that model of business operation is different than just your traditional operating company. So when we looked at technologies to support our businesses, and this was 20 years ago, internally, we bought what was available, which was traditional horizontal generic CRM from the big, original tech vendors. And they weren't bad products, and they still aren't bad products today. They're actually great products.

• 5:02Speaker 02

  They just weren't built for the investor and advisor community. We had some operating partners and some technologists as part of our team in the private equity business, and we ended up abandoning some of those horizontal technologies we had tried to use. We went alone and built our own solution internally. And this was really before vertical SaaS was even a thing. And the technology was bespoke. It was custom-made for the use case. We were quite proud of it, and we shared it a little bit with the market, the LPs and the investors and the fund, and some of the other GPs that we were close with. And everybody said, hey, well, this is pretty good.

• 5:44Speaker 02

  We're having the same challenges with the horizontal software community that we've all purchased to run our businesses. It's not an exact fit. It's not a bespoke suit. It's an off-the-rack system that really just doesn't give you that custom fit. And so eventually, we got enough positive feedback on the software that we had built that we spun it out of the private equity firm where we had originally developed the technology. And we set off on the course of building a vertical-specific CRM and deal management system. And we've spent the better part of the past two decades really refining the capabilities and working deeply with 40% to 50% of the market at this point on the appropriate requirements

• 6:29Speaker 02

  to take various specific care of the investment banking community, the private equity community. And that's really expanded to include vertical software for all the flavors of alternative assets, private credit, the secondary's business, the co-investment business, the fund investing business. So we tend to believe that we've built a market-leading position, developing vertical software for the players there.

• 6:51Speaker 00

  So as you map out the product suite today, how do you describe how it's organized?

• 6:57Speaker 02

  In the most simple terms, a lot of the market comes to us looking for what they would consider to be CRM. But there's a lot of flavors of that. And so depending on who you are and what your job is, CRM can mean a lot of things to you. So if you're on the investment or the advisory side of the business, that could mean tracking your relationships with prospective companies that you would buy, invest in, or that you might advise. So we work with a lot of the front office investor and advisory community just to do

• 7:36Speaker 02

  traditional BD, sourcing, origination, deal management, and CRM to support their revenue efforts of their firm. But there's a number of other use cases that go beyond that. And I would say the second most popular one is for the private capital community, managing the fundraise and the investor relations component. And that can also mean CRM. So capabilities to manage the pool of current and prospective LPs that might be invested in a fund, and then use the technology to take care of those relationships, stay in touch with those folks. But also, as these businesses have grown from GPs with single fund structures to really

• 8:21Speaker 02

  many publicly traded kind of multi-asset managers out there today, CRM can also mean managing that suite of the firm's capabilities in terms of their new funds, their new fundraises, and all the LP interactions. And then we have a series of features and capabilities that surround that, relationship intelligence and AI around the people and the companies or the investors that are in your CRM database and giving your firm insights into those relationships. There's a lot of fun stuff around email marketing and just traditional blocking and tackling with workflows and automations, things that can help run procedure at your firms, like

• 9:04Speaker 02

  investment committee or staffing, or getting deals through the pipeline and getting those deals diligent and worked through. Oftentimes, we're grouped into what I would call a CRM moniker, but that, but today, that means a lot of things in terms of the feature setup, what it can do.

• 9:21Speaker 00

  What are some of the features that are particular for the Deal Cloud solution that were part of that pain point when you were looking at some of the legacy CRM providers before you started the business?

• 9:34Speaker 02

  First and foremost, the database architecture of sales-based CRMs means that I sell a product to a buyer. When you check out at Target and buy a series of items, they know you're their customer and the items that you buy from them. But when you think about the deal business and the ecosystem that we support and we work in, the process of putting $100 million, or $500 million, or $1 billion of capital to work in an asset is a little more complicated than I sell a product to a buyer.

• 10:15Speaker 02

  And what we found was that the relationship network that impacted the transaction is really complicated most of the time. Usually, there are tons of constituents involved on the transaction, internal and external. And usually, these firms are trying to map a strategy to give them a differentiated approach, either winning the transaction, or adding value to the transaction, or an ultimate operating plan to grow and run the business or win the deal. And That procedure is a multi-year journey. It's not transactional. There is a transaction that happens, but it's usually multi-years in the making.

• 10:57Speaker 02

  And then the actual deal process can take six to 12 months when you do finally get engaged. We built a modular database that allows us to map those relationships in a multi-relationship format. It is not a single linear sales-oriented relationship where customer buys products. It is a multi-object model that allows you to map the relationships in a very sophisticated manner. When we first got started, that was a primary difference that we observed between the horizontal technology providers and us, which became the vertical specific technology provider in this market that really was important.

• 11:41Speaker 02

  People were frustrated with how the clicks in the system work because they didn't support the day-to-day workflow of the profession. And so we fixed that. We fixed the database model. We made it multi-relationship. We made it multi-tagging. And we actually borrowed a lot of architecture from some of the consumer tech companies. And then CRM and databases in general in these markets, I think, have had a bad reputation. Folks will tell you, I'm not going to use that product, or that's not easy to use, it's clunky, or these are my relationships and I'm not going to share them with the firm. And so I think we got the product orientation right, but one of the main things that we've been focused on over the last

• 12:24Speaker 02

  four to five years has been, how do you make the ease of use of these products match the preferences of the people and the personalities in this market? They're high-performing individuals, they're very smart, they're very busy, and really, they don't want to spend their time doing data entry. If you look at CRM and the promise of CRM, it's always been that you're going to

• 12:49Speaker 02

  bring together the entirety of your firm's franchise, you're going to bring all that data together, and by using and leveraging that data, your firm will be better together. Now, those products usually fell short because you had to use them, you had to put the data in to get something out. And so over the last four to five years, the technology has really stepped up in its ability to do that automatically.

• 13:17Speaker 02

  There are things that we can't do as the vendor. We're not going to sit in the meeting with the CEO and record that conversation. There are always going to be proprietary moments for these firms and their relationships and the data that they're getting. But there's a lot of data out there that we can get automatically and that we can auto-capture. I'd say the biggest innovation over the past few years has been this auto-data entry. We can do that by syncing the system with Exchange. We can bring in all the emails automatically, we can bring in calendar activity automatically. We can map who knows who, who's talking with who, who has the best relationship with other firms.

• 13:56Speaker 02

  And we can do that without any data entry, we can do that automatically now, just by picking up the data that already exists. And we can also bring in the third-party market data. So if you're looking at a potential company and you've got to set up a profile on that business, that's an annoying few-minute task. And we can go to the third-party market data today and we can pull that data automatically. At its core, the data structure is different, the database is different, and the architecture is different, but we're spending a lot of time meeting these users where they are and auto-capturing their data so they don't actually have to use the product. Those two things combined, I think, really

• 14:40Speaker 02

  describe what we mean by vertical-specific software. It is a custom-made suit, it's a bespoke fit to what they do during the day.

• 14:48Speaker 00

  How does that translate into the speed of onboarding if you're bringing in a new client who hasn't used the system before?

• 14:56Speaker 02

  Depending on the size and complexity of the firm, it can vary tremendously. When you're at a large, global, multi-strategy asset manager, or a large, global, top-10 investment banking firm, the deployments can be months to years, depending on the size of the organization, the number of funds, strategies, desks, units that we're going to support and bring onto the system. But at the same time, there are firms with $300 million of capital and four or five partners who can make a decision on a product like this in a matter of a week, a couple of weeks, and can be up and running in a very short period of time.

• 15:39Speaker 02

  So the variation is out there, but what we have tried to do is learn each advisory practice area, M&A to the capital markets, the leveraged finance desks, and also all of the different versions and flavors of alternative assets today, which continues to grow. We've built these accelerators or templates. So our goal always is to try and go as quickly as possible and to use best practices that we've learned by supporting other firms that operate and work in these markets.

• 16:13Speaker 00

  And once you have a client who's on-boarded, how frequently are they interacting with the system?

• 16:19Speaker 02

  One of the things that we're very proud of as a company and as a platform is we've got an incredibly deep and developed relationship with Microsoft. We leverage the Microsoft Cloud to deploy technology stack, but we have also integrated our product with all of the Microsoft products that everybody uses every day. So in any given moment, our users are in Outlook, Excel, PowerPoint, Teams, SharePoint, and our technology products has been integrated with all of those systems. The usage varies by person and how they spend their day. If I'm an analyst and I'm at my desk all day, I'm probably logged into the desktop-based version of the product

• 17:01Speaker 02

  and actually it's probably open on my screen 100% of the time all day. If I am a mid-level aspiring partner spending time on relationship development, I'm probably sitting in Outlook all day, but the integration of our product and Outlook meets me right there. So I might not be logged into the desktop version, but I might be using it for my email throughout the day many times as touchpoints. And if I'm a senior partner fundraising on the plane without a computer, I'm on my iPhone or an iPad and I'm using a mobile app to see it. So we see tremendous volume of usage across post-deployment. We see 70, 80, 90% of the active users that

• 17:44Speaker 02

  have licensed the product using it on almost a daily basis. And some of those users can be non-stop throughout the day.

• 17:51Speaker 00

  As all that's happening, you have the ability to collect data. You mentioned earlier the use of AI. Really curious how you collect all this and then what is this AI engine bringing to your clients?

• 18:05Speaker 02

  We're spending a tremendous amount of time on this right now, and I think everybody is. AI has been a backbone of our business and there are versions of AI that don't have the same visibility as I think generative AI has gotten over the past year and a half with GPT and others. And again, I want to be explicit about this, the databases of our clients are proprietary to our clients. We don't own those. And we are not collecting all of that data and contributing to any model. But there is applied AI in each client deployment. And the idea is, on a client-by-client basis, can AI help that client

• 18:48Speaker 02

  identify the companies that they should be spending time with? The ones that are most likely to trade or do a deal? The ones that have the highest probability of them actually winning? And not just at the company level, but more broadly around all the relationships that the firm owns. And instead of being a place where that data is contained, the system becomes a place where we are recommending

• 19:17Speaker 02

  to them how they spend their day. Not just showing them the data around how they're spending the day, but actually using that to say, well, we think you should do this, we think you should call this company, we think you should spend more time with this person. The probability of you being successful here is X. And so that's really, I think, the next evolution of these products and where we're trying to take our platform to today is, one, making a recommendation engine, but two, the generative AI component is pretty interesting because you can save these people a lot of time. So by collecting the data, consolidating the data, by bringing in the third-party

• 20:01Speaker 02

  news and market data feeds, you could automatically know what's happening. And you can say, oh, I see you just hired a new CFO. I see it's been four years since you've done your last PE investment. Oh, it looks like your employee count is trending to these levels. Oh, it looks like your business could be potential IPO candidate. And you can discover that without somebody telling you that. You can use the data that influences the company and the relationships that surround the company. And then it becomes a question of how can we generate relevant content to create efficiency and time savings for these people? There's a lot of spots in the product that we see AI being relevant, identification,

• 20:46Speaker 02

  recommendation, the generative component, and the firms that have a very rich CRM and data-driven culture will be in better position to leverage the AI. Because the more data that you can apply it to, the more of a benefit that you can get from the technology itself. We're spending a ton of time on it. It has huge allocation from our R and D budget over the next, this year and the coming years. And we've got early versions of things like that in the product today. So we're excited about it.

• 21:21Speaker 00

  If you were mapping that to a baseball game and saying, when you get to the ninth inning, you are going to wake up and you're going to have these emails ready to hit send, and they're going to say exactly what you want to the people you want to send them to. What inning do you think we're in today?

• 21:34Speaker 02

  I think it's early days. The technology to do that exists to train the model and do the generation. But we've gotten pretty clear instruction from our clients that they generally are not interested in taking all their data and contributing it to a big LLM model that's going to ingest that. Because they've spent decades building their franchises and the data behind their franchises, and they value that data significantly, and they don't want that going out to the market. And so the firms that have done the organization and have that all together, so that you can get all of that data into the AI model together, that is really the architectural component right now, that a lot of the AI technology is there.

• 22:19Speaker 02

  It's just getting it applied on top of a consolidated version of that data. I don't think this is hype. I think this is a generational shift in technology and the way people are going to use technology. And I think the majority of our clients are acknowledging it as such. I think it'll move quickly over the next 12 to 18 months.

• 22:38Speaker 00

  As you develop these capabilities, you have a product, let's say, that's serving a need that you could see how it could evolve to a service that helps people generate revenue, find deals. How do you think about the potential change in your business model that results from that?

• 22:58Speaker 02

  I'm optimistic that it will make our platform more valuable and people will want to pay more for it. And it will give us pricing leverage and the value will generally go up over time. And I think that's probably true. Still, to this day, our number one competitor remains Excel, which is kind of hard to believe that that's where we still are. And then at a lot of the large global enterprises and publicly traded firms that we support, they have built internal systems that are very antiquated. So like Excel Plus, basically. And they're not even on the first generation of horizontal technology or the first generation of cloud products yet. And so I think the first thing that will happen

• 23:43Speaker 02

  is there will be a pretty massive acceleration of the remaining participants in the market to products like this. Because as the value comes up, if you're not a user of the technologies in that capacity, you are essentially extending a gap between your firm and the other participants in the market. And the competitive nature of the business today is incredible. The number of participants has ballooned. The competition for deals is greater than it's ever been, and the advisory community is as sophisticated as it's ever been. I think the first thing you see is a big acceleration for anybody who's not in vertical specific cloud-based technology with applied AI, you're going to see those firms pretty

• 24:27Speaker 02

  rapidly make the switch from Excel or internal build, or even that first generation of horizontal technology that came out of Silicon Valley. And then hopefully, over time, that means value of the product goes up. So we're really encouraged because the secular trends in the private capital markets and the allocation of private equity and private credit and all these asset classes is really positive. I mean, it's a secular bull market. It's been growing for decades. And the projections from Bain and McKinsey and all of the research houses that do analysis on the market is that it's going to continue to grow and explode to 20-plus trillion-dollar

• 25:09Speaker 02

  asset class. And so we think we've got a great growing asset class, but we think we have an acceleration of technology adoption within those firms, and not just inside of the private equity investors, but also inside of the advisory firms as well.

• 25:23Speaker 00

  When you started on the sell side of deal making, and then the buy side of deal making, and then you become an entrepreneur in the space, what have you learned from running this company that is different from what you thought about running companies as an investor in private equity?

• 25:39Speaker 02

  The deal business is a fun place to be. You know, in the advisory business, you go from transaction to transaction. And that's fun because you tend to learn a new business or a new business model or a new customer every three to six months as you're just cranking through mandates and cranking through transactions. And then in the private equity business, you tend to own an asset for three, four, five, six, seven, eight years and work with the management team on the strategic initiatives from the board level to grow and enhance that business. But as you get into an operating role with a company, and you go down to the day-to-day level of operating and running the business, there's a lot of variation. You're sitting on the board of five or six companies in the private equity

• 26:24Speaker 02

  world and working with management teams, there's a lot of variation. When you're doing one thing, one business, really trying to grow that one specific item or strategy, you go really deep. You are trying to operationalize and professionalize every last detail of the company. So I would say I've gained a tremendous appreciation for what it means to be part of a management team, or what it means to be an operator, because it requires to dig down and understand every last detail and improve each one of those items every day, week, month, year. It's just a little bit of a different lens, and it's a fair bit

• 27:08Speaker 02

  more focused. Operating has a bit of a more focused lens than when you're working with multiple companies or on a bunch of deals at the same time.

• 27:16Speaker 00

  Ben, one more. What's been your favorite aspect of being involved in this business?

• 27:22Speaker 02

  Well, I think when I first got involved in the industry, I think one of the big realizations for me was that a lot of the capital that was being allocated into the private equity alternative assets industry was coming from the big pensions and the endowments. And a lot of that was money for the pensioners. And I think if you look at what's happening today, you're starting to see the democratization of the asset class for the retail investor, too, not just the big pensions and endowments. And so the asset class itself has shown an ability over the past 20 to 30 years to outperform the public market equivalents, depending on which vector you picked.

• 28:06Speaker 02

  And so I think it's become a very prudent option for companies as they look to grow, scale, and professionalize their companies. And so the asset class has really shown that as the technology provider to that industry today, we are helping those firms operationalize and scale their businesses. When we got started, there were no publicly traded private equity firms or private credit firms or asset managers. And today, if you look across the spectrum of the top 500, 600 GPs or 5, 600 managers, the majority of them run our technology and our products. In the same way that the private equity capital or the alternative investment community helps the companies themselves grow and scale and professionalize, we're

• 28:51Speaker 02

  really helping the derivative of that, which is the GPs or the LPs themselves, grow and scale and professionalize their business. So we're proud to be a technology partner to those firms. And we believe that those firms are helping to finance a large portion of the economy today.

• 29:08Speaker 00

  Well, Ben, thanks so much for sharing the story about how you're doing that to support the industry and also for your great support of Private Equity Deals Podcast.

• 29:17Speaker 02

  We love your content. We listen to it all the time. We use it to train our team as a way to help them get familiar with the industries. And we're very thankful to be a part of your series and have a chance to sponsor it and address your audience. So if any of the listeners want to learn more, they can reach out to us. We'd love to give them a demo of Deal Cloud or the platform and show them the latest and greatest.

• 29:40Speaker 00

  Well, they heard it here first or second or last. But either way, thanks so much, Ben.

• 29:44Speaker 02

  All right, Ted. Thanks for having me. Really appreciate it.

• 29:47Speaker 00

  Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com, where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time.