Tech CMO Turned Growth Equity Investor – Kelly Ford on Building a Modern Deal Sourcing Machine

Axial’s CEO, Peter Lehrman, recently sat down with Kelly Ford, a Partner at Edison Partners, to talk about Edison’s approach to deal sourcing, how they increasingly use technology to enable and power their deal-sourcing activities, and the intersection of deal sourcing and digital marketing.

Edison Partners is a New Jersey-based growth equity investment firm, an Axial member, and an investor. Edison has been actively helping CEOs and their executive teams build and scale successful businesses for more than 30 years.

Prior to becoming a Partner at Edison, Ford was a three-time CMO at several high-growth SaaS companies, including LivePerson, Sundaysky and Operative. Ford’s CMO experience lends a particularly forward-thinking approach to private equity business development and deal sourcing.

Peter: Before we get into growth equity and deal sourcing, tell us more about Edison Partners. What kind of companies does Edison love to back?

Kelly – We get excited about technology companies with recurring business models (SaaS) generating anywhere from $8m to $20m in revenues, growing at 30% or more year over year, and that have been capital efficient. By “capital-efficient,” I mean the company has taken minimal to no prior institutional investment. In fact, our portfolio companies typically have raised $2m or less prior to our investment, whether from friends, family or angel investors. The ability for founders and management teams to build customer-funded product and prove product-market-fit without significant funding while operating close to or at breakeven is pretty special.

Peter: Does that mean that Edison Partners wants to get in the game early and doesn’t really want to share the equity returns with other investors?

Kelly – Ideally, we are the first institutional investor but we happily work with other institutions. Our goal with being the sole and lead investor is to ensure best possible alignment with founders and management teams on growth strategy and exit goals.

Peter: How does your firm go about sourcing these companies at the right points in time?

Kelly – We have identified and are actively monitoring about 4,000 companies in our target sectors of fintech, healthcare tech and enterprise solutions. If I put my CMO hat back on, I think about those 4,000 companies as Edison’s TAM, or total addressable market. Our research director tracks what’s happening with these businesses, publicly available information, such as new product launches, executive and other key hires, funding rounds. These insights combine with intelligence we gather from our own interactions with founders, CEOs, and M&A Advisors to inform an outreach cadence that help our associates prioritize their activities. Our relationships and engagement with these businesses are developed and nurtured over the course of 29 months on average before we actually invest in a company.

You recently published an article on Capital Superabundance, acknowledging PE’s shift to focus on their own business development excellence, just as they expect sales and marketing operational excellence of their portfolio companies. Edison has always strived for business development excellence and operated with a machine-like mentality. Advances in technology, digital marketing, and a growing repository of online information on companies are helping us take our deal-sourcing processes and practices to the next level.

Peter: Can you talk about the specific types of technology Edison is using to power and inform its deal sourcing activities and motions?

Kelly – I recently spoke on a panel at the Kayo Private Equity Conference on this very topic, how PE is moving from the dark ages and into the digital age.

At Edison, we’ve always run business development as a data-driven process and machine. But four years ago, we upgraded our tech stack to enable us to better track our companies and our efforts. This included a move to the cloud across our basic IT infrastructure, migration from a decade-old, server-based database system to Salesforce for our CRM, and implementation of Hubspot as our web/email/content/social marketing platform. In addition to Hubspot and Salesforce, our tech stack includes various data sources and deal sourcing solutions to deliver on the intel and insights on investment candidates that I mentioned earlier.

Peter: Why do you think much of private equity is still in the dark ages when it comes to professionalizing business development?

Kelly – I was surprised to learn at the recent Kayo conference that so many firms have not yet invested in dedicated people and systems to optimize sourcing and get more leverage for their business development teams. There’s so much insight and leverage to be gained through just a little bit more technology and headcount investment.

I see three possible reasons for firms being slow to innovate in this regard:

1. Many investment firms lack a focused investment strategy. They invest as generalists. That lack of focus can get in the way of having a sophisticated BD strategy; being so opportunistic makes it difficult to be proactive. Our strategy at Edison is data-driven, specific to our three industry sectors, and our entire firm is aligned on it. If this were not the case, our investment in technology might be wasted.
2. Operating experience is still commonly lacking inside investment firms. While PEs have operators on staff or contracted to help their companies, most firms lack the talent in-house to improve firm operations.
3. If it is not broken, don’t fix it. While I can understand this argument / approach, I don’t agree with it. This is simply not the mentality of top-performing organizations, whether you’re in PE or otherwise.

Peter: For firms where their deal sourcing sophistication and status is in the “dark ages”, what actionable advice do you have for them?

Kelly – First, it goes back to focus, which may sound trite, and certainly, obvious. But using technology and modern BD solutions is not a strategy, and it won’t enable large gains in business development effectiveness and efficiency for a firm without a clear investment strategy. So the most important thing a firm must do is to select a defined market of companies that they wish to pursue, and then the business development motions, tactics, and approaches all flow out of that.  No matter what strategy and market you pursue, there are some things you must have to be at baseline from a BD perspective:

1. You must have a trusted store of data where you and your colleagues and partners are diligently recording your interactions with companies, M&A bankers, etc. You need a shared repository for this data, so having a CRM is required.
2. You must have a plan for how you will reach your target market of companies. You can have plans to reach them directly, or reach them through the channel of investment bankers who advise them, or both. But no matter what, you need a plan for how you’ll reach your market. There are conferences; there is the tapping of your network; there is cold-calling; there is email-blasting; there is social selling; there are BD sourcing tools like Axial, etc.

But those two are baseline – a place to store your interactions with the market and share with your firm, and a map of the channels and routes by which you reach the CEOs and business owners in your target market.

Peter: What’s next in deal sourcing and private equity BD?

The industry really can learn a lot from modern B2B marketing and sales strategies and the technologies that enable them – from more sophisticated use of data in identifying and targeting companies, to automating tedious tasks for greater prospecting an networking productivity, and leveraging all relevant channels (yes, more than email) to educate and engage audiences.

There’s certainly opportunity for tighter integration between the tools that are currently being embraced by private equity firms and other mid-market players. My view is the winning tech stack (dare I suggest, single platform?) for our space will eventually have the following characteristics:

1. Precise matching of investment strategies with best-fit companies
2. Insights not only on the best-fit companies to inform engagement, but also on your best connectivity to the executives inside those companies to facilitate introductions and engagement
3. Multi-channel engagement options – on and offline – for tapping personal and social networks, enabling content marketing, and even leveraging events

Technologically speaking, these three capabilities are available and possible for our industry to implement today. We need a shift in mindset and investment in the right talent to make it a reality.

Peter: Thanks Kelly, this was terrific. Thanks for spending some time with us.