How Technology Leadership Can Unleash Private Equity Portfolio Value

Introduction: In today's hyper-driven world with volatility, uncertainty, complexity, and ambiguity (VUCA), private equity firms recognize the vital role that technology plays in driving portfolio value. Since a portfolio company’s success depends on its ability to use technology to improve business outcomes, PE firms are faced with evaluating whether their portfolio companies have the right technology strategy and the right technology leadership to execute that strategy.  Instead of hiring full-time technology leaders at all levels of a PE firm, this article presents a novel approach to adopting technology leadership at both the fund and portfolio levels to bring expertise and accountability for technology from pre-acquisition through exit. 

Overview: There’s another way to bridge technology leadership gaps at the firm and portfolio levels besides hiring full-time CIOs, CTOs, and CISOs. By leveraging Technology Leadership-as-a-Service (TLaaS, the expertise of seasoned CIOs, CTOs, and CISOs on a full- or part-time basis), PE firms of all sizes can align technology investments with their investment theses and unlock maximum value.

How Can Technology Leadership be Used to Maximize Portfolio Growth?

Technology is playing an increasingly significant role in the success of PE-owned firms. By using Technology-Leadership-as-a-Service (industry-leading CIOs, CTOs, and CISOs on a virtual, fractional, or interim basis), private equity firms can leverage their technology leadership expertise and achieve two key objectives: 

1. Align technology investments with their firm's investment thesis and 

2. Ensure that each portfolio company's technology aligns with its respective business strategies. By harnessing the power of technology, PE firms can drive portfolio growth and enhance overall value.

How Does Private Equity Benefit from Technology Leadership at the Firm Level?

Technology leadership within portfolio companies has been shared, of course, for some time.  What about the technology leadership needs of the PE firm itself for scouting/due diligence in the pre-acquisition phase and ensuring that portfolio companies have an appropriate and common approach to managing technology?   Historically, private equity firms have relied on non-technical operating partners, internal talent management, or their portfolio companies to address technology leadership needs - but rarely has the fund engaged technology leadership directly.  As technology has become a critical part of due diligence through value creation, PE firms are increasingly shifting to a dedicated type of operating partner with the title of Technology Operating Partner.   Working directly for the fund, the technology operating partner serves as a crucial resource for scouting and pre-acquisition/due diligence, as well as a technology-specific link between private equity firms and their portfolio companies. With deep expertise and experience as a CIO or CTO, these professionals provide strategic guidance and operational support to portfolio companies. By leveraging their specialized knowledge and industry insights, Technology Operating Partners enable informed investment decisions and drive value creation within the portfolio.

What are Technology Leadership Solutions for Different Sizes of PE Firms?

Private equity firms are justifiably sensitive to costs allocated at the firm level rather than at the portfolio level.  While there is no industry-wide consensus as to how operating partner compensation is sourced by the firm, there is no doubt that the size of the firm will dictate its ability to leverage operating partners.  Adding a technology-specific operating partner, the Technology Operating Partner may seem an unaffordable luxury for smaller firms. Yet, it is necessary if a firm seeks to use technology to capture more value and maximize a portfolio’s growth.  Here’s how small, medium, and large PE firms can benefit from Technology Leadership-as-a-Service:

• Large PE Firms - Technology Operating Partner Support: Large PE firms have a voracious appetite for technology leadership throughout the PE lifecycle, often justifying a full-time Technology Operating Partner.  But, the strong appetite paired with cost constraints often overloads the Technology Operating Partner with due diligence, portfolio company technology issues, and portfolio-wide initiatives for transformation and cost efficiency.  For firms with a full-time technology operating partner, a Technology-Leadership-as-a-Service provider can augment the existing team's capabilities. These experts collaborate with the technology operating partner, offering support and acting as fractional and interim leaders when needed. This strategic partnership ensures that technology initiatives are effectively executed, maximizing portfolio company performance.

• Mid-sized PE Firms - Fractional Technology Operating Partner: When mid-sized firms rely on non-technical operating partners to handle technology responsibilities, they can select a fractional technology operating partner.  Taking on as much of the work as feasible themselves, the fractional technology operating partner can also access other fractional CIOs, CTOs, and CISOs to augment their time and abilities  - usually paid for by the portfolio company. This approach:

• Makes adding a technology operating partner more affordable, 

• Aligns with various lifecycle phases, and 

• Enhances each portfolio company's growth potential.

• Small PE Firms - Virtual Technology Operating Partner:  Small PE firms aren’t likely to be able to afford or attract technology leadership at the firm level. However, a virtual technology operating partner offers affordable senior technology leadership as an advisor and conduit to a larger pool of world-class fractional CIOs, CTOs, or CISOs to serve in due diligence and virtual, fractional, and interim roles within portfolio companies.

How can Technology Leadership Add Value throughout the PE J-Curve Lifecycle? 

Technology-Leadership-as-a-Service (TLaaS) provides value throughout the private equity lifecycle in three key ways:

1. Pre-Acquisition: Technology Leaders excel in due diligence assessments, ensuring effective technologies are leveraged within the required timeframe.

2. Post-Acquisition/Value Creation: With extensive experience as CIOs, CTOs, and CISOs in multiple portfolio firms, experienced Technology Leaders cans manage and improve portfolio companies by standardizing and optimizing technologies.

3. Pre-Exit: TLaaS enables PE firms to maximize investment returns and post-exit business readiness through technology enablement, ensuring a seamless transition.

Learn more about Technology-Leadership-as-a-Service (TLaaS): Fortium's strategic technology leadership solutions empower private equity firms to harness the full potential of technology in driving portfolio value:

• At the PE firm level, offering a range of options to engage a Technology Operating Partner allows the firm to take advantage of world-class leadership through all phases of the PE lifecycle.  

• At the portfolio level, by offering virtual, fractional, or interim CIOs, CTOs, and CISOs, Fortium enables PE firms to align technology investments, optimize portfolio company performance, and enhance overall value creation. 

With a focus on pre-acquisition, portfolio-level, and portfolio operations support, Fortium ensures that private equity firms can navigate the rapidly evolving technology landscape, drive portfolio growth, and enhance overall value.