Do you remember when you were 13 and you and your friends rode your bikes around feeling like the kings of the neighborhood? Did you feel like there was nothing you didn't know? That’s being 13. While you were feeling like a king in what was a very small kingdom, there was a bunch of 16,17 and 18 year teens that were going farther, and faster because they were driving cars. We can look on this example with a smile on our face with a laugh emanating from a spring of nostalgia that says, “Wow, ignorance really was bliss.” Youthful ignorance is acceptable and even funny, but not when you’re running a fund.

Right now, not many private equity funds possess the skill set to understand a digital business. The road of acquisitions is littered with the inexperienced (boys on bikes) being run off the road by funds with an experienced digital strategist (big boys in cars). The seed of this issue is most PE firms think they have digital expertise in house because they have an I.T. department. There is a monumental difference between I.T. and a digital strategist — enough so that it requires a separate article. What you need to know is that digital is a multi-disciplined orchestra, and the digital strategist is the conductor. No conductor = a lot of sound without any music.

Private Equity Digital Strategist

Digital is vast, and unless you’re in up to your ears, you can’t possibly understand all its dimensions. For example: let’s say we are a PE fund and we’re considering purchasing a company that has created a super gee whiz app. This app seems like it is going to be huge and there is a ton of excitement with dreams of EBIDTA north of 10x and vaulting over your hurdle like a pole vaulter on Red Bull. Digital gets people excited, and even more so when they are not experts-- funny how it’s the same kind of excitement for a first time entrepreneur looking at potential investment and/or a liquidity event. Are you seeing the parallels here?

As the partners and analysts of the firm look at the super gee whiz app’s potential, they should be asking some of these questions:

• Do we really understand what this app does?
• Do we know who it serves?
• Do we know who it should be serving?
• Does the app have room to evolve, and if so into what?
• Will this app be relevant in the next 3-5 years?
• Was it built on a platform that will be scalable?
• Is the app deriving as much revenue potential in it current platform if possible, and if not, what needs to be done to do so?
• Does current management understand how to market the app?
• Has management understood their digital cost per acquisition?
• Does current management have the expertise to continue development?
• Do we understand the social aspects of this app?
• Do we understand the competitive landscape of competitors that aren’t currently competing? (This one is a doozy!)

The list goes on and on, but if you took time to actually think about those questions instead of just skimming, you might realize you have a digital strategist hole in your team. It’s important to emphasize that these questions start heavy on the conceptual side but back themselves into cold hard numbers by the end. A good digital strategist is half artist, half scientist. A good private equity digital strategist may be part art, part science and part deal maker.

Every PE fund needs to know what a digital strategist is so you, as a fund, can understand when to bring them in. A definition is provided below. If you think you can define it before reading any further — good for you — you probably have a digital strategist working with you now. But if you don’t think you can — read the following very carefully and then ask yourself — is my fund doing all this? Because if they aren’t — it’s time to lose the bicycle and find a car.

Digital Strategist: A strategist with expertise in online resources integrated with a high degree of digital knowledge to understand, conceptualize, and direct tactical implementation of an overall digital strategy.

Now does it look like you have a staffing issue?

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