The future of banking: data-driven relationships supported by AI

The views and opinions expressed in this article are those of the speakers and do not necessarily reflect the views or positions of any entities they represent.

• Bankers can’t rely on personal connections to conduct business anymore
• Initial interactions are crucial and need to be data-backed and include specific, contextualised research
• As the relationship evolves, requirements and deliverables evolve too from initial interaction, thought leadership and research, project origination and to deal execution
• AI can do the heavy lifting at every stage to support producing content and delivering services so bankers can focus on creating better relationships
• It’s low-hanging fruit at the moment: the tools are there, banks just need to use them

Just over a year ago, leading technology-focused private equity firm Accel-KKR made a significant capital investment in Singletrack to accelerate our global expansion. The AKKR team have deep insight into what investors need from their relationships with bankers on both the buy and sell sides, so we sat down with Managing Director Phil Cunningham to learn what he looks for in interactions from banks, and where bankers can really differentiate themselves. Here’s our conversation.

Singletrack: So, a new banker gets in touch with Accel-KKR. Whether that initial interaction is an email, a cold call or via another channel, what influences you to engage? What information can a banker provide to make you interested enough to take the next step?

Phil: Gone are the days of just being able to call and leverage a name, to say, oh, I know so-and-so at the firm from the past. I think there was a time and place for that, but now our expectations are different. Good preparation really makes an interaction with an investment banker stand out. That means being aware of our firm, knowing the types of businesses that we invest in, being able to communicate their own background in that specific space, including any deals they’ve done. From that first meeting, phone call, or possibly even that first email interaction, they have to have pertinent data, and have done the research to know who we are, and what we’re typically interested in. That is what will separate a banker in my mind.

Singletrack: That aligns with what we’re hearing from our clients, they prepare a lot more intensively now. As you say, the Rolodex days are over – name dropping won’t cut it anymore.

Phil: Yes, we’re beyond that.

Singletrack: You’ve mentioned some key pieces of information including the sector specialism, some knowledge about your firm, your interests, past deals, etc. Are there any other areas you’d like to hear about from a banker during your initial contact? Upcoming deals or market colour, for example? 

Phil: That’s a great question – yes, there are. I think there are two key pillars. The first is what we’ve just been discussing: background information, knowing what we specialise in, having good basic facts to present. The second pillar is research. It’s one thing for a banker to say, I see that you work a lot in healthcare, we’ve done a lot in healthcare, we had the mandate on these particular deals. To have an interaction where someone says I see that you work a lot in healthcare and you specialise there and we have compiled the following research, the following data, whitepaper, etc, on what’s going on in healthcare, and I’d like to walk through that with you. That is powerful. And I mean real research, it’s not just oh, I know these ten deals happened. It’s talking about the deals, the research, the transactions, the multiples. I think that’s a very important element of differentiation, for sure. 

Singletrack: From your perspective, does that research need to be specific, or could it be repurposed from other areas of the bank? For example, would you be interested in seeing a thought leadership piece on a target sector? 

Phil: Repurposed content is absolutely acceptable here, but for a banker to really hit the mark with us, we would want to see some value added to that information: we want them to have done something with it that’s tailored to us.

Singletrack: As the relationship evolves beyond initial outreach, do your requirements evolve too?

Phil: Yes, I think the requirements do evolve, but once you have a relationship with a banker, I still see technology as a really key differentiator. A clear example here is generative AI. It’s going to be really transformative. We’re talking about AI and ChatGPT internally, in fact, we’re even doing a contest at AKKR at the moment about how AI can help us as a firm. I see a big role for AI helping to automate relationships. I don’t see that making relationships robotic, by any means. But the use of technology and data to enhance workflows, and make the ongoing interactions and relationships seamless is going to be key. I mean, as we said earlier, the Rolodex days are gone. We’re looking for high-quality, bespoke interactions, and the right tech stack and the right AI tools are going to make it so much easier to get there.

Singletrack: What are some of the common mistakes here? Are you still seeing things like calls from bankers whose colleagues have already spoken to you?

Phil: It still happens. I mean, you would think that using the kinds of tools we’re discussing would be a no-brainer, if you will, but a lot of bankers are still very old-school. Maybe they’re not even utilising a sophisticated CRM tool. That can mean you get a call from a new banker at a firm you heard from only the day before. Another classic mistake we see is outreach to discuss a company we’ve literally just invested in. Again, it’s just somebody not utilising the technology that’s already available. It’s very easy to tell, from our perspective, whether people have done their homework. You can tell by what they’re trying to engage you with, the way they write the email, or the phone message. We see a lot of these mistakes, and unfortunately we’re going to remember them. They move a banker down in our estimation and mean we’re less likely to engage. 

Singletrack: That makes sense. You have one bad interaction where someone hasn’t prepared properly and they try to pitch you a company you’ve already invested in, of course that’s going to stick in your memory.

Phil: Absolutely

Singletrack: To your point about AI, we’re already seeing our clients using it in the ways you describe. For example, they’re using AI to see which portfolio companies are likely to come up for sale or for transactions in a coming period. And there are lots of ways to slice the data: you can look at time held, multiples for that sector, what current market activity looks like, any recent changes in ownership or leadership structure, etc. People are starting to bring all that data together.

Phil: Let’s think about everything you just mentioned: when did the firm invest? What’s going on in the market? Are other people investing? Are the multiples up? Down? You can factor in interest rates, publicly traded comparables. AI can do all of that – it can do all of the heavy lifting. So if I were giving advice to bankers on how to improve, using this technology would be a big part of it.

Singletrack: What do you see as the key opportunities for bankers to really improve their engagement when they’re reaching out to people? What does best practice look like over the next couple of years? 

Phil: If I were to put it all together, I would say the best practice is using an internal software suite, incorporating a bank’s research, their CRM, appropriate AI tools and so on, to get the robust data background which will create those meaningful interactions. Really, I think it all comes down to that last piece: how does a banker create meaningful, seamless, high-quality interactions with a firm like ours? At the moment, the key differentiator is technology. The right tools can help you understand the person that you’re talking to, have the data at your fingertips, create the proprietary research which will move the needle with them. And at the same time, these tools make your life easier as a banker. Better results and an easier time of it: that’s what I would call the Holy Grail. 

Singletrack: And all that is actually achievable today. It’s not a pipe dream for five years’ time. 

Phil: Yeah, it’s not like we’re talking about something that’s decades away. 

Singletrack: Moving onto the next stage: when you’re deeply engaged with a banker on a specific mandate or deal, do any of these requirements evolve?

Phil: Then you shift to a different dataset, which is extremely important. Once you’ve locked arms, I think the focus shifts to knowledge of the buyer’s universe. So where initially we wanted to see market research, for example, now that we’re engaged, we want to go deeper and see things like targeted lists of top five buyers. To go to this next level, we’d expect people to use all the tools we’ve already discussed, but with a narrower, more specific scope. Getting this focused view is really important. In our world of private equity investing in software technology, it’s not easy to buy or sell businesses. So when you engage with a banker, you want that banker to make sure that he or she is walking you through the most efficient process for exiting that business. And all of that links back to current, comprehensive data.

Singletrack: Is that process changing? We’re specifically hearing about a trend towards juniorisation. Does the level of seniority of the person you’re speaking to matter? Or is quality of information paramount?

Phil: While they both matter, I think that just as the days of the Rolodex are gone, so are the days of a senior partner being able to show up and sell a business. Is it important that somebody has experience? Sure. But what’s more important is the quality of the process. We want someone to present a specific, targeted, well-researched proposal, and that’s going to be valuable no matter their number of years in the business. People reading this will know that the world has changed. A decade ago, you put together a management presentation, sent it out to a hundred people and because the partner has personal contacts at five of them, you’d sell the business. That’s not the case anymore. The process is becoming more focused and narrower. We’re starting to hear about boutique processes. I don’t want to diminish the importance of having some experience and seniority, but what is the most important is the quality of the process, and that’s about preparation.

Singletrack: Have you seen innovation in how banks are engaging with you? Are you still receiving a lot of emails, for example, or are you seeing bespoke portals, video calls or other fresher formats?

Phil: We do see those tools in the mix, but I’d say they’re still mostly in the hands of early adopters. An example of that, as you mentioned, is a custom portal that anybody at Accel-KKR could log into and have a menu of interactions. We definitely see value in this kind of thing – it makes our lives easier. As a partner myself, it saves a lot of time to be able to log into a portal that’s been created for me with the market data, research etc that I’m interested in, rather than having to search through my inbox for old emails. I think that kind of thing can be very powerful.

Singletrack: One of the tools we’ve been working on recently enables you to capture the current focus for a private equity professional, arranged by metrics like sector, deal size, areas of interest, etc. For AKKR, does that profile evolve over time or is it relatively sticky? 

Phil: For our firm, I’d say it’s relatively sticky. We’ve been doing this for 23 years, we have only focused on software and technology, and within that we specialise in vertically oriented software. At a smaller firm, or a firm that is less tenured, you might see that profile change a little bit more. But even if it’s a little more static, it’s important to understand and be able to track a firm’s focus and interests. That knowledge is going to inform meaningful interactions.

Singletrack: What do you predict will be the most transformative tech tool over the next ten years? Based on our conversation so far, I imagine you might say AI.

Phil: I think it will be AI, yes. The stuff that we’re seeing now, including ChatGPT, is moving at a pace that’s unparalleled, and I do believe that it’s going to be the biggest differentiator in the next ten years. The potential efficiency gains for business development professionals are phenomenal, and the quality of the interaction that it creates for the receiver is too. I think we’re just getting started with AI. We talk about it, we hear about it, you read about it every day, but it’s really just the beginning.

 

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