Home > Deal origination, Investor Relations, Private Equity and VC > Does Private Equity “get” social media?

Does Private Equity “get” social media?

I’m not talking about venture capital, because those guys definitely get it (well many of them, at least). I’m talking about small buyout houses, mid-market buyout houses and upwards.

1. Fundraising
In markets where LPs and consultants are overloaded with information on new funds coming to market, one would think that a new channel of communication (this is all social media, collectively, are) would be pounced on. And it is free. Have you seen anyone outside of the venture space really doing anything interesting?

2. Deal origination
Particularly in a time when operational expertise is prized over financial engineering, one might expect that a medium perfectly suited to the demonstration of expertise would be a key weapon in the arsenal of any deal origination team. I was fortunate to speak with David Teten on this topic recently and he definitely gets this, too. There is so much that COULD BE done. And so little BEING done. The first team that grasps this and runs with it is going to steal a considerable march on the competition.

I think I am going to give a little more thought to this topic and I ‘d be interested in anyone else’s views.

  1. Peter Lahoud
    July 16, 2009 at 12:39 pm

    most VCs had to get it pretty quickly since many of their entrepreneurs get it.

    But for PE, there’s an element of chicken and egg here – much of PE (agreed, not all) still works in a world where your target market considers golf and dinners to be best networking value. Until they’re all online it can feel somewhat fruitless, although it is improving month by month.

    • July 16, 2009 at 1:36 pm

      I think that it is always important to consider how a particular target market consumes a particular medium (if at all), when trying to market to that group. The fact is that the golfers and diners are already well-catered for. I don’t think social media has to displace other networking models in order to be useful; I think it can work alongside these models.

      I’m not suggesting a deal originator trying to connect to senior management at established businesses ought to spend half of his or her time on facebook, but a decent profile on LinkedIn and a few minutes here and there will bring results – I am convinced of it.

  2. Anon
    July 17, 2009 at 3:23 pm

    Let’s face it. Most PE shops add no value. They get deals from bankers, cut costs (the biggest component is labour) and hope they can make the interest payments until they sell it to another sucker.

    • Matt Craig Greene
      July 18, 2009 at 10:22 am

      Well, they definitely want to try and make those payments, that’s true! As for the rest, it’s not a unique opinion, but I don’t know that lumping everyone together is that useful.
      Best regards,
      Matthew Craig-Greene
      IE Consulting

  3. NA
    July 17, 2009 at 3:53 pm

    BLOGs are just a tool to achieve an end…communication of information. Many PE firms essentially BLOG via the “news” sections of their websites. Sure, this doesn’t allow for two-way conversation, but most PE firms also publish contact info on their website. PE firms don’t necessarily need a “public forum” for discussion, just a way to push out the latest news (which is far from daily) and generate inbound contacts and deals. Any decent PE firm does this, and has been doing this for a long time. It’s different for VC firms, both because their audience is different (younger, i.e. BLOG consumers) and because the information they act on (tech trends, etc.) change on a daily basis…

    As far as fundraising goes…if LPs are overloaded with information, how does adding BLOGs and bugging people via LinkedIn help? Show me one firm, VC or PE, that raised money specifically because they BLOGed or had a LinkedIn profile. LPs don’t have a problem finding investment opportunities (funds knock on their doors all day long)…they have a problem getting into the top tier funds. Same holds true for PE firms…you earn your way in to the better LPs by making good investments, not by musing about things via BLOGs. Prove me wrong and I’ll start a BLOG tomorrow…

    Perhaps the reason that you don’t see PE firms doing these things is because the results don’t warrant the investment…like any company, PE firms have limited bandwidth, so they use it in ways that yield the best results (going to industry events, trade shows, ACG events, etc.).

    • Matt Craig Greene
      July 18, 2009 at 10:15 am

      Well, perhaps the moniker “n/a” is well-chosen. Comparing social media to a PR news feed essentially misses the point; to my mind, social media is only a useful channel when it is personal and interactive; a press release is neither of those.

      If we can agree that, at least in deal origination (and I would argue in fundraising, too), the emotional component of decisions reached (I would argue this is the most significant component, but more on that next week) is rooted in the relationships that develop between GP and business management or GP and LP, it seems odd to deny that any means to the end of beginning such a relationship can be a useful endeavour – there may be better ways to meet the right people, of course, but better ways can often be more obvious ways (and hence have no chance of being unique). Next time you approach an LP at a trade fair, have a think about how many identical conversations he or she will have in that same day.

      As for LinkedIn, I have a group (Private Equity and Venture Capital Backed) with around 600 used-to-be are-now or wanna-be vc/pe-backed managers, that I grew from nothing in 3 months. I’m going to argue that that is valuable to GPs (they are blocked from joining), and those originators I have recently met with agree…

      All of this is just an opinion, of course, but I wonder if anyone would have read it if Iposted it as “news” up on http://www.ieconsulting.co.uk ?
      Best regards,
      Matthew Craig-Greene
      IE Consulting

  4. July 17, 2009 at 5:06 pm

    I think “demonstration of expertise” is the key phrase. It’s not just about having a social media presence, but about using that presence to show your strengths in a certain area. And this is not shown by saying “hey, we’re really good at this” but by offering information of value (opinion pieces, how-tos, informative blogs, research, even a sensible and disciplined stream of Tweets). And the firms that ‘get it’ will also understand that this is not a quick fix, but once you start it snowballs and you could steal a serious march on the comeptition.

    • Matt Craig Greene
      July 18, 2009 at 10:19 am

      I completely agree. Twitter and blogs are a great way to demonstrate expertise and understanding if used with personality; Linked in groups are a great proxy for expertise. Running a sensible group with good membership can make you more visible and also make you an obvious contact for group members thatneed advice about a deal or other related issue, which they do not want to discuss openly in the group.
      Best regards,
      Matthew Craig-Greene
      IE Consulting

  5. July 18, 2009 at 7:07 am

    I’m not sure what added value you’re expecting a PE professional would gain through embracing social media.

    Sure, there may be some benefit for junior professionals building their personal networks on LinkedIn and Facebook; but from a firm perspective it doesn’t have the same attractiveness as it does for the VC business.

    Neither types of PE (LBO or VC) can raise capital other than through a strict vetting process (or risk SEC problems). That means that the capital raising part of the business is out.

    I really don’t think that they lack for employee candidates, although their websites – to the extent they exist – do help with the recruiting process.

    That leaves deal origination.

    VCs benefit from educating entrepreneurs about the VC process, the business building process, giving clarity about the types of deals they look for, and raise their profile. This increases their deal flow (although it’s better for entrepreneurs to use THEIR networks to generate an introduction, since these VCs get a HUGE volume of flow).

    PE firms, however, don’t originate business that way. They aren’t looking to educate management looking to do a Management Buyout (they’d consider it, but that’s not their general focus).

    Perhaps they can do more to benefit their portfolio companies, but I don’t see that as being social media as much as broadening their web platform (putting up job listings).

    Perhaps the portfolio companies themselves would benefit from social media in terms of their supply chain – maybe.

    So why do you think this will be embraced by PE firms? What is the value?

    • Matt Craig Greene
      July 18, 2009 at 10:49 am

      I think it is short-sighted to dismiss any medium that can help originate and support relationships between senior deal do-ers and potential portfolio company managers. Social media give PE personnel a channel through which they can be genuinely helpful to those with whom they wish to build relationships and, perhaps uniquely, the people with whom they build these relationships may not even be known to them.

      Also, just because you can’t get a fund commitment through a tweet or linked in discussion does not mean that these cannot help. People buy from people, even in highly regulated markets. And suggesting that mid-market buyout firms would not be keen to educate managers into the idea of a buyout directly contradicts everything I am seeing in the market… Which would you rather do as a GP, bid in an auction run b an i-bank or own the bid process through management, with access to better company information? It’s the latter, every time.
      Best regards,
      Matthew Craig-Greene
      IE Consulting

    • Peter Lahoud
      July 20, 2009 at 8:06 am

      I know you might not sight a deal online, in the same way you wouldn’t actually sign a deal on a golf course, but are you really implying that building an informal relationship in advance is of no benefit? your argument seems to imply networking and relationship-building generally is of no benefit since it’s not transactional or immediately productive

      Both the GP-LP and GP-portfolio management team relationships may have to last for up to a decade, through ups and downs. Building a personal relationship in advance of signing the deal (be that on-line or in-person) can be a huge benefit in ensuring a good fit throughout – consider it the engagement before the wedding.

  1. October 23, 2009 at 4:59 pm

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