When starting a new investment fund, most partners / founders want to build the most cutting edge software stack possible in order to gain an edge on the more established (and traditional) competition. We have worked with dozens of new funds on their software strategy and based on that experience have created a short reference sheet of what works and doesn’t work, below:
It is very tempting to buy “the standard CRM that everyone else uses” in the first year as a way to gain credibility with LPs, but you will only be making a mistake. When your team is small you will be adding unnecessary administrative burden. In addition, most of your established competitors are actively looking to leave the most popular CRM platform or automate it with bespoke integrations - be going with the market leader you are simply repeating their mistakes with a 5-10 year lag.
Get a simple out-of-the-box CRM, like ListAlpha, Attio or Affinity. This will allow you to understand what good modern software looks like and will solve 80% of your initial needs. There is also no vendor lock-in with these companies hence you can always upgrade or go to a more complex system later on
You are a new fund, your priorities, investment style and needs will change rapidly. Committing to a multi year cost burden will not allow you to do that. Purchase monthly software that allow you to keep the costs down and to be flexible down the road.
It is tempting to go down this route as a way to differentiate yourself, however this is expensive and painstakingly time consuming (trust us, we have done it). Chances are the person doing this internally will make architectural or technical mistakes that will need to be remedied later or require additional costs to support. We suggest building your own stack only once you have reached a certain AUM / fee size
Proprietary lead scoring is tempting idea and one that we see a lot established funds try to do. Unfortunately very few are able to evidence actual return on that investment in more completed deals or more off market transactions. Excel has a 1.0m row limit and any capable analyst is able to extract a data set of target companies from Pitchbook and score them using a formula of 3-5 factors. The hardest part of doing this isn't the analytics or the software, it is the reach-out motion that supports off market origination.
This is a trivial statement but one that we see being consistently true. Get basic, modern tools and invest your teams time to make sure that you are using them to the highest potential.
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