Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
00:14:31 · Michael Sidgmore, Venkat Subramaniam
[00:14:31] S1: So cap tables are something that many people will be familiar with in private markets in the venture context. Carta has built a large cap table management business focused on venture funds and venture backed companies. Why has it been harder to do that for private equity? [00:14:47] S2: Carta have done an amazing job in in building what they did in in venture. And the reason why there wasn't anything available to private equity is because of the complexity. I think the value proposition is exactly the same. What Carta are trying to solve is what we are doing for PE. But the complexity in private equity is that, for example, the capital was never at one level. You you have multiple levels of legal entity chains. They are never in one jurisdiction, multiple jurisdictions. They're never in one currency. So if you take Europe as an example, a PE fund might hold investment in UK, across Europe, in Switzerland. There's vast amounts of currencies in there. And then the instruments that are used in private equity context are very different. There's a combination of debt and equity. So the complexity level in PE requires a completely different product. But if you think about the value proposition that Carta are trying to solve, that's exactly what we are doing, but different solution. [00:15:43] S1: The value proposition may be similar or the same, but the way in which you build the platform, is that very different? It is. Because what you end
00:15:43 · Michael Sidgmore, Venkat Subramaniam
[00:15:43] S1: The value proposition may be similar or the same, but the way in which you build the platform, is that very different? It is. Because what you end [00:15:52] S2: up having to do when you're solving for PE capital is you... You're combining a lot of different things, because you can't do p capital without some form of legal entity relationship and legal entity management thing. So you're connecting that bit, and you can't do p capital without things like structure charts, debt instruments, waterfall valuations matter a lot. I think in venture, venture funds don't seem to be doing quarterly valuations in the same sophisticated way as PE does. In PE, it matters a lot more because you're a majority owner or a significant majority owner, and you have lots of different types of instruments. So the product requires a lot more than just a simple cap table solution. So we have ended up having to kind of connect dots across lots of different things. [00:16:36] S1: Another really important point that you bring up is making sure you're connecting dots across a lot of different things, and also organizations. So I imagine there's also more stakeholders that have to be connected in the process. It's external stakeholders, tax, audit, valuation, in addition to everyone internally. How does a platform get built to work with this cadre of service providers who have to be involved in these processes
00:17:04 · Venkat Subramaniam
[00:17:04] S2: on an ongoing basis? That is the beauty of software. And this is maybe where the Excel and software play comes in as well, because when we speak to any of our clients, there'll never be a single source of truth, which is a common phrase used. We excel at multiple different levels. So fund finance teams would keep their own version that they'll roll up every quarter. Deal teams might have their own version. Portfolio companies may have their own version. Advisors may be holding something that is outdated and so on. The beauty of a software is you can bring all those players together. Obviously, that means you need to spend a lot of time thinking about user management role based access controls, and there's a lot of sensitivity to this data, so you need to be careful with that. But once you achieve it, that's where the the power comes in. So in our context, you're able to grant access to the valuation teams, the deal teams, the portfolio company, CFOs, CEOs, and so on, advisers. They all can come in and use the data when they need it. And now I think even at our audits, auditors are spending a lot of time diligencing this data. So software makes a huge difference. And I think one benefit of being an ex tax person is also that tax, in many ways, is the glue between front and back office. So a lot of what front office are doing when they're putting these structures in place is driven by commercial requirements, but tax plays a huge part in achieving those commercial requirements. And then you you become the glue with the back office teams. So when we speak to heads of tax and PE funds, when they look at our solution, they get it very quickly because they're being pulled in both directions. They're having to solve the front office problems, but after a deal is done, they become the glue with all the back office functions. So stakeholder management is a huge part of having a software.
00:18:50 · Michael Sidgmore, Venkat Subramaniam
[00:18:50] S1: How much time is saved in a process like this? So we did a bit [00:18:54] S2: of exercise recently. You know, the yellow sticky paper I was referring to, we kind of did some work on how many hours spent across the board. We think on average, if you're a mid market, say, PE fund, large... You can kind of extrapolate it. Let's say, 20 portfolio companies across multiple jurisdictions, you're looking at easily over a thousand hours a year of time being wasted. But it's more than that. It's the hours you can quantify, but it's... What you're doing is your decision makers are spending a lot of time trying to get access to facts. Emails are going. I was speaking to a deal team member a while back, and his frustration was every time we needed cap table information or a structure chart, you'd have to email someone and wait on it. It's crucial why. Why do we have to wait on it? And why are people spending all the time trying to figure out, is this the right information? And this happens across the board, so your productivity of your decision makers, your firefighting often on exits trying to correct some issue. So it's... How's lost? It's cost? And if the risks are such that they've only been identified on an exit, that is a lot of adviser costs and reputational issue as well with the buyer. You're haggling on maybe warranties and empties and price adjusts. Where my mind
00:20:13 · Michael Sidgmore
[00:20:13] S1: goes when you talk about how do you get easy access to that information? How do technologies like what you're building at DealsPlus become an integral part of the operating system of a firm? Because I think that's part of a broader industry trend, which is many of these alternative asset managers are really evolving as businesses themselves. Yeah. Therefore, they need software that helps them run their business, and helps them kind of cross the value chain, and is their operating system. How does something like DealsPlus get integrated into the workflows of what someone's doing day to day or becomes the operating system?
00:20:47 · Venkat Subramaniam
[00:20:47] S2: That's a great question. Private markets are very complex. I don't think you can have one software that solves everything. You've got investor relationships to manage. You've got deal originations. You've got portfolio KPIs, track things like ours, accounting systems at the fund level. So there's lots of moving pieces. And I think there is a recognition more and more as I speak to CTOs and more people that you need best in class applications that are solving each individual problem. But then there's a lot of data in all those applications, and funds want that data. And that's why I think AI plays a huge part in that, but you need to consolidate that data together. So an interesting trend I'm seeing now is things like data cubes or data warehouses. We have a client who who has spent a lot of time in building a data warehouse, and they're plugging in all these best in class applications that they're using. It it also allows them to use best in class applications. And then all that data comes into a data cube or data warehouse, and they... That becomes way more man... Meaningful for them. So I think that's a very interesting trend I'm I'm seeing, but the industry is moving towards, let's have the best in class application doing each thing, and we will take care of the rest.