Dry Powder: The Private Equity Podcast
“Advanced analytics” is admittedly a fuzzy term, like “web 2.0.” But sometimes a fuzzy term marks the beginning of a transformative change—the sort of change that leaves an industry groping for words. I believe advanced analytics is that sort of change. It will drastically accelerate the private equity industry’s speed to insight. (Listen to our premiere podcast episode below.)
Over the past 25 years, we’ve seen three cycles of speed to insight in due diligence. There was what I call “the analog age,” when speed to insight depended on how quickly we could work the phones, fly to a client’s site or dig through musty files in a government office, in search of a target company’s blueprints. Then the “Internet age” came along in the late nineties, turbocharging our speed to insight. Answers that once took weeks to discover in the field we could now fetch in a matter of days. Today, with advanced analytics, we're hurtling toward an era in which firms will compete to develop new analytical techniques, new proprietary data sets and new ways of getting information that you either couldn't get before or didn't even exist.
“There’s a lot of enthusiasm about this topic,” says Richard Lichtenstein, our featured guest in the inaugural episode of Dry Powder. I asked Richard to kick off this new podcast series because he’s constantly addressing one of our clients’ most urgent and recurring questions: “What can we do in advanced analytics? How do we build something out?”
Richard runs the advanced analytics team for Bain & Company’s Private Equity practice. He and his group have developed a suite of tools that Bain now uses in over half of the diligences that we conduct worldwide. After talking to some 100 vendors, hacking through exotic databases, and spearheading tools that make the data more searchable, retrievable and altogether more usable within due diligence time frames, Richard’s advice to clients is simple: Don’t try this at home.
What makes advanced analytics so challenging for firms to adopt is that it’s an umbrella term stretching across a highly complex digital ecosystem. It includes such a variety of vendors, offering such a motley assortment of data sets and tools, that it’s no small undertaking to figure out who has the differentiated mousetrap, how reliable their data is and whether they’ll be a viable partner in the long run.
There is no advanced analytics equivalent to the yellow pages, where you can look up which vendor to call or what tool to deploy for the question at hand. So, in the absence of a phone book, we’ll offer you the next best thing, an operator like Richard Lichtenstein.
In the first of this two-part interview, Richard shares stories from the front lines, insights from trailblazing private equity firms and a look at the analytical tools his team has developed, which may change the way you think about due diligence.