Factors PE firms need to consider when evaluating technology opportunities.

What should PE firms consider when assessing potential digital technology opportunities before making the implementation choice for each of their portfolio companies?

The assessment of potential technologies and software development projects and digital transformation opportunities should be based on the validation of the investment hypothesis through technical perspectives.

This requires a full understanding of specific industry and technology trends, the dynamics and outcomes of digital competition, and their impact on the individual holding company and the underlying markets or related areas as a whole.

In addition, the assessment or evaluation of digital and software development opportunities should provide insights into the portfolio company's values, weaknesses, and challenges.

This is an important step in identifying digital solutions to address identified vulnerabilities, at the same time reducing the company's traditional technology-related weaknesses.

Furthermore, PE firms must assess the digital opportunities readiness of existing portfolio companies, and all portfolio companies must identify the digital capabilities needed to change and become competitive over time.

This leads to the requirement of conducting the identification, evaluation, and measurements of various operational digital initiatives that could increase the value of the portfolio company’s business in the short to medium term. 

Other, less measurable value enhancements, such as digital employee experience or gaining up-skills in the value chains of each portfolio, are the key to supporting digital transformation. IT talents and their skills can also be sources of opportunities for digital transformation.

A portfolio company with a large group of machine learning engineers and data scientists, cloud architects, or full-stack developers could be best equipped to take advantage of software development opportunities.

HOW do firms overcome Problems During The Stage of Software Implementation?

When introducing new technology solutions to business, there will be some challenges that many companies, including PE firm portfolio companies, may commonly encounter.

One of the biggest obstacles to implementing digital solutions is to make sure everyone understands how technologies can solve the key business problems and how the solution can be applied across businesses together.

Creating a clear digital vision and plan, understanding how digital solutions will support a co-ownership requires training and close alignment between the portfolio company management, and investment teams, as well as the portfolio leadership teams.

Another major barrier is managing stakeholder expectations about the value and timing of its impact. It is important to prioritize digital initiatives based on profitability and investment needs.

Portfolio and PE companies also need to be clear about the outcomes they expect and be patient with the results. It is important to be disciplined, in order to carry out innovation, test, measure, and improve, as well as focus on new changes in the business process. 


Starting the technical capabilities development early within the holding period - ideally, after the deal closing, so that the PE firms can have sufficient time to see the results in the exit on multiple folds.

To overcome barriers, regular communication must be established between the portfolio company’s employees and company leadership to review the implementation of specific initiatives, and the corresponding performance, as well as to collaborate on the important decisions.

How do PE firms measure and quantify the outcomes of software development opportunities?

To determine how digital initiatives can lead to higher returns on investment, it is essential to understand current digital capabilities and the maturity level and identify initiatives with the real-world application of technology that can take companies to the next level, in terms of value creation. In general, digital adoption can enhance business value by increasing EBITDA.

Examples include increasing revenue through capturing larger market share with data and analytics-enabled products and services, and improving performance and productivity, to drive down costs, with digital solution technologies such as ERP, CRM, and Cloud Computing Adoption. 

It is found that digitally transformed portfolio companies can have buyers that are willing to pay more compared to financially similar non-digital companies. Adding technical and digital capabilities to your portfolio company can increase digital maturity.

For the rest of the portfolio, portfolio management teams can study technology companies and try to apply the same models to their business. In the majority of these cases, digital technology was the leading factor in driving manufacturing operations and enabling the automation of back-office work.

However, it should be noted that there is not a set of key digital performance indicators (KPIs) for all companies and sectors. Businesses are different, and digital transformation is often used for different purposes. The right KPI is for those working for a particular industry, a particular business model, or a particular investment target company.

Portfolio companies need to define their individual digital ambitions and initiatives and link relevant KPIs to assess performance on exit. Clear business cases that match the exit horizon of the PE owner are critical to overcoming the negative reaction and attracting stakeholders.

PE firms often do not know where to start or how to prepare a digital plan before exiting the investment and leaving it to the next owner to implement it. PE firms need to understand the applicable and key digital cornerstones to achieve digital maturity in their portfolios.


How to track the progress and ultimate success of the process?

In general, it is important for PE firms to gain an understanding of technology adoption and to conduct digital capacity level assessments, as well as portfolio evaluations and rankings, to identify capacity gaps and share best practices with their portfolios companies for mutual benefits and growth.

The activities of the digital capacity assessment, led by a technology partner or external software vendor, should determine the implementation of each portfolio company's current technology development plans and goals, and collaborate for improvements on the most impactful ones.

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