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What London Private Equity Funds and M&A Boutiques Can Learn from Tech-Savvy New York Firms

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As an experienced London-based cloud professional, who frequently travels to New York, I’ve noticed that on average, US investment firms seem to be more tech-savvy than their London counterparts. A US-based investment banker can work on their deals right from their iPhone while riding on the train. A fund manager’s office in London is more likely to witness frenzied activity simply to create a report for an LP meeting.

That is a bit perplexing considering the playing field is level – almost all of the tech products available in the US are also available to London firms. Also, the US fund managers and bankers are likely to be as uneducated when it comes to tech issues as their London counterparts. Why the difference, then?

In my experience, it may have to do with how we approach the process of buying a new system – how we perceive the costs and expected benefits. Here are some examples:

1. Are We Reading the Fine Print

It is sometimes tempting to fall for a product with low up-front costs, even though it doesn’t solve the core problem that it is supposed to.  For instance, many UK-based investment firms use Microsoft Dynamics or Lexis Nexis as their front office system, but cannot get these products to help them originate deals efficiently or manage their investors. Instead, these systems end up being used for simply managing contacts.

On top of that, these seemingly low-priced systems end up proving to be much more expensive, since they require skilled technicians at every step. For Microsoft Dynamics, the cost of software licenses (on average) is only 30% of the total cost. The other 70% is spent on professional services, a fact well and better understood in the US. They know that the attractive price sticker hides the true cost (systems integrators, IT staffers) required to make the system valuable to their business.

2. Technology is Too Important to be Left to Technicians

In London, purchase decisions take place over longer due diligence periods (remember, we’re a cautious bunch). Fund managers avoid devoting their own precious time to system selection, usually entrusting the job to IT personnel. If they don’t have an IT person in-house, they tend to hire a temporary one.

This invariably shifts the due diligence focus to IT security and integration features that are, for the most part, table stakes for any successful vendor today. Their search tends to gravitate towards DIY (Do It Yourself) systems that give IT people something to do (and stay employed).

In New York, I’m usually pressed on how the system provides an actual return on investment. What they’re asking for is a way to quantify a platform’s improvement of specific business goals. For example, a fund manager may want to know how Navatar would result in more deals reviewed annually or more touchpoints with buyers/sellers/investors. See example below.

Navatar Deal Sourcing

3. Nobody Ever Got Fired for Choosing IBM

There is always a strong case to be made for playing it safe. UK firms tend to be more risk-averse and prefer to stick to the same systems that other firms, similar to them, are using.  Whilst it would always be sensible to follow the path well-trodden, it invariably leads them towards “tried and true” systems that are out of date and even obsolete.

A lot of US bankers and fund managers understand that these large IT companies have a lot of customers but are also acutely aware that they are not designed for their industry. They see the merits in caution and diligence but are also keenly aware of the competitive advantage that can be gained by a solid system designed for their business.

Of course my observations are only my own. Others may have spotted ways that Londoners are more tech-savvy than their US counterparts. If so, I’d love to hear them. Drop a line in the comments section below.

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