Fund raising, monitoring old investments and administration now take up more management time and resources than ever, according to a survey by ICOSR, a financial services software firm. ICOSR reveals that in 1999 managers spent around 50 per cent of their time on new investment activity, 40 per cent monitoring investments and 10 per cent on investor relations and reporting. Respondents from funds varying in size from GBP61 million to over GBP500 million agreed there is an increased emphasis on monitoring existing portfolio companies.
David Kipling, CEO of ICOSR, says venture capital firms are using surprisingly unsophisticated tools, such as spreadsheets, to help them manage information on portfolio companies. PricewaterhouseCoopers recently reported fewer than 50 per cent of private equity managers use a formal system.
The ICOSR survey also found the number of failed investments is higher than the historical norm. And it seems unlikely that failure rates will subside in the foreseeable future. This risk of failure means more time is spent on problem investments. New investment activity is perceived to be lower than in the past, perhaps as a result of increased monitoring time, but funds are expecting an increase soon. Exit returns are also suffering due to closed public markets and low M&A activity. As a consequence the time from investment to exit has increased, further depressing returns, and funds need to take a longer-term view of portfolio structure.
Having already raised GBP436,000, ICOSR secured venture funding of GBP170,000 earlier this year to help it market its product, a web-based information and document sharing system to help private equity investors and advisors manage deals and access portfolio information.