5 Reasons Private Markets firms are embracing AI to source deals

5 Reasons Private Markets firms are embracing AI to source deals.

Since 2017, we’ve been talking to Private Equity firms across Europe about their data infrastructure and the opportunity for AI to give them a competitive edge. In those early years, there were a handful of early movers who started building in-house. EQT was seen as the admirable first mover with perhaps just the most ambitious 5% of PE firms following suit with in-house projects. Most PE firms were happy to keep existing processes through 2018 to 2021. This would typically involve 4-6 subscription data sources and a well-used licence of MS excel and MS powerpoint. Investment analysts and Origination teams did the hard yards to stay on top of market insight and originate new deals.

In the intervening years, these top 5% of PE firms have enjoyed the benefits of these platforms achieving some powerful outcomes. Many now have a well-oiled origination machine, with one of our clients citing over £100M deployed from AI originated opportunities in the last two years. Furthermore, they have been able to accumulate a rich back-catalogue of market insight that can frame and test today’s investment hypotheses and firm up their fund strategies. 

And now it seems the rest of the Private Markets (including PE,
corporate finance and private debt) industry has awoken to the opportunity (or perhaps threat).

In the last 6 months something has changed in the market. The curiosity has turned into an eagerness to get started, or rather, to catch up. So, what has changed? We’ve identified 5 key themes:

1.  Competition has become even more fierce. Being the first investment firm to engage a management team makes such a difference in steering and winning the deal. How do you find the hottest firms in your space, before they are in a competitive auction process? 

2.  Much of the firm’s market intelligence is locked up in its people. The organisation needs a mechanism to bottle the Intellectual Property of their people for fear of them being poached.

3.  Portfolio companies need help with their market intelligence. Whether it’s for buy & build strategies or just to outperform the benchmarks of their competition.

4.  The money demands it. LPs are increasingly demanding that new funds have an edge, and better that they are supercharged by data or AI-led insight. As with everyone, they are looking for that unfair advantage that will lead to superior returns.

And finally…

5.  The ROI is now undeniable. Our PE clients are deploying significant capital through AI-sourced opportunities, having invested a fraction of this on a proprietary solution. Meanwhile, the time-to-value and implementation-cost have come down with each quarter, so the launch cost is not so daunting.

These 5 drivers have created an urgency and FOMO (Fear Of Missing Out ) within the European PE community and beyond. Many are now starting to build out their data infrastructure and invest in AI to source deals and gain timely insight on the market. Fortunately, there is now expertise and experience to help every PE firm to catch up with early movers and build a lasting, scalable advantage over competition.

And a note on Syfter…

We are focused on helping Private Markets firms build proprietary AI platforms… In our Syfter platform, we’ve productised the enabling ML technology that every PE firm needs (aka the “plumbing”). By white-labelling Syfter, our clients and partners can get a proprietary system operational in weeks not years. All the configuration effort and budget can be focused on the true competitive edge: that is the unique data and the unique ML algorithms tuned to their investment thesis.

How investment firms can use AI to gain market intelligence and a strategic advantage: 

An executive perspective.