As GPs embrace digitalization, automating valuations remains a nuanced challenge. Given the variability of inputs and the ever-changing application of subjectivity, GPs need a technology platform that effectively balances the flexibility of Excel with providing efficiency and data quality gains.
Purely Excel-based valuation workflows offer GPs certain advantages and disadvantages.
Manually collecting and aggregating portfolio company financials pose data quality and efficiency drawbacks. At scale, manually rekeying data from disparate documents across a fund’s portfolio wastes significant time and resources. This copying and pasting can often expose data to human error, especially when teams build valuation models using 30 or more tabs.
The same limitations arise in consolidating and using valuation outputs. Manually aggregating outputs into a central workbook can lead to errors and make it challenging for downstream stakeholders to monitor data status and ensure they work with approved figures in their reports and analyses. Additionally, GPs also struggle to maintain a record of the review process, including underlying assumptions, model changes, and valuation input sources.
While Excel raises data auditability and quality concerns, it offers several benefits to the valuation workflow. Namely, most investment teams prefer to operate in Excel, and its inherent flexibility provides critical speed and adaptability.
Valuation models are often sector or investment-team-specific, and their drivers and methodologies can shift frequently. However, most technology systems enforce predefined processes that limit a firm’s ability to implement custom approaches or easily modify the methodology and inputs over time.
Additionally, given the inherent complexity of valuation and captable-related calculations, training a distributed user base on ‘black box’ technology can become a significant change management effort and expensive use of resources due to the typical 2-3-year turnover of deal team members.
GPs need technology that supports the flexibility of Excel-based valuation workflows, offering key efficiency gains by automating manual tasks and providing intuitive integration with firms’ existing processes. Flexible technology systems provide several advantages for valuation workflows.
When GPs create a single source of truth for valuation inputs, they can whitelist metrics for integration into valuation analysis, unlocking efficiency and data quality gains. From portfolio company financials to other valuation inputs, like costs and realizations booked, deal teams can pull validated figures directly into their valuation models, minimizing errors, facilitating automatic roll forwards of quarterly models, and enhancing confidence in the data.
Once valuation teams complete models in Excel, firms can leverage automation to push outputs back into a centralized cloud-based repository and create a streamlined valuation-specific workflow that mirrors its existing review and approval process while enhancing collaboration.
Team members can easily access all of a portfolio company’s valuation outputs, models, and supporting materials, flagging anomalies and making corrections actionable as necessary. If a Managing Director disagrees with the valuation multiple used by a deal team member, they can comment and have that feedback recorded in the cloud.
Additionally, centralizing all of a valuation model’s iterations enables firms to efficiently track adjustments. This ensures uniformity in the model version used by team members at various stages, reducing silos and providing stakeholders with enhanced visibility.
Given increased scrutiny on valuations and transparency requirements from regulators and LPs, firms also benefit from the enhanced auditability technology solutions provide. In a cloud-based repository, GPs can easily trace the history of valuation outputs and models with exceptional granularity, supporting a compliance-focused framework.
Incorporating technology into the valuation workflow also provides data harmony across a firm’s front, middle, and back offices. Granting official approval to valuation outputs and preventing overrides ensures all internal stakeholders use finalized data for downstream purposes. Stakeholders also benefit from automatically importing these outputs into reports or systems like accounting platforms.
Additionally, with validated valuation data centralized, GPs can efficiently analyze key drivers affecting portfolio value, evaluating performance by fund, sector, or round. With Excel, aggregating this data across disparate spreadsheets can become a timely endeavor.
Ultimately, when firms implement cloud-based technology and automation alongside their Excel-based valuation workflows, they can significantly enhance the process’s quality, efficiency, and auditability without abandoning the flexibility of Excel.
With Chronograph, GPs can simplify and automate the process of monthly and quarterly valuations to ensure consistency and timely delivery with valuation tools that ensure compliance with global audit standards. Underlying models are streamed alongside the data to ensure easy access for auditors or other constituents.
Additionally, Chronograph’s Microsoft Office integration bolsters and streamlines existing workflows. Chronograph’s robust Excel plug-in, xConnect, allows for bi-directional refreshing and updating. Users can also use Chronograph to export fully formatted reports to Word and easily roll forward quarterly valuations using Chronograph’s Report Builder module.
Learn how to incorporate automation into Excel-based valuation workflows with Chronograph
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