Software Development & Value Creation For Private Equity's Tech-Enabled Portfolio Companies
Software is eating the world -- Marc Andreessen
Looking at the return on investment, how much value do private equity (PE) firms and their portfolio companies generate through software and software development? It is possible that, at a minimum, part of an investment firm’s growth strategy may depend on the development of software products.
Investors have been increasing their stakes in the world's top tech companies and tech startups and increased their valuation - at least on paper - to the north of billions of dollars. The benefits are mutual for both private equity firms and their portfolio companies.
However, while it is keen for PE firms to see the benefits of the IT software business, some mid-sized portfolio companies may not have the adequate resources to effectively manage technology operations.
The solution is to partner with an external software development vendor to help the portfolio company leverage the experience of a team of IT professionals with expertise in the required domain and connect the IT strategy to the company's business strategy.
In fact, in order for PE firms to realize the profitability of their software-enabled portfolio companies, they need experienced software engineers. However, the IT talent market has been becoming increasingly competitive, so hiring qualified developers everywhere is a challenge, but for many non-technology companies, it can become a lot more intense.
In addition, private equity firms need to help generate revenue while reducing costs without compromising the value of the software products. A partnership with an external software vendor can balance the costs efficiency and quality of software development.
Benefits of working with a software development partner
Many PE firms already know that when they partner with an external offshore software development agency, they can increase the profitability of their business, by spending less money on the salaries expenses.
The rates for hiring external software developers vary by region and seniority level, as well as the technologies of choice. Still, hiring a remote external team will enable you to obtain quality development work while paying less than hiring locally.
PE firms can choose to test-drive by a partner with an external software vendor for a pilot project first, and then scale up the remote team once the delivery of results meets the quality as expected. Instead of setting up a large number of external teams to support software development in PE portfolio companies, the software development vendor can add value directly through a single dedicated remote team. Here, one dedicated team can be utilized across a number of portfolio companies.
Think about the time, effort, and expense it takes to hire and onboard the new software developers if you decide to set up an in-house team and hire in your local market? There is a lot to do.
The job placement and hiring of these qualified professionals can take up to 6 months or more. Due to the lack of IT resources, hiring skilled software developers can be getting a lot more difficult, adding with the stress of expensive markets, price is now among the biggest challenge. If you decide to partner with an external vendor, many of the problems can be taken care of sufficiently.
Working with an external software vendor will allow PE firms to focus more time on their core competencies while the development partner takes care of all HR-related matters such as hiring and training. In case of members changing or unsatisfactory work results, thanks to a large talent pool, new members can quickly be substituted as per projects requirements. Thus, projects can go as smoothly without disruption.
Factors To Consider When Partnering With A Software Vendor
Whether the investment into your portfolio company is for long-term growth or short-term exits, you need to quickly establish strong support to the individual company to generate value and profit. Partnering with a software development vendor can enable both strategies, to allow IT-driven business gain.
An experienced software development partner can quickly hire the necessary number of qualified engineers for your projects. Software developers are familiar with the Agile working culture and can immediately familiarize themselves with the project’s requirements, and quickly work on the developments projects with clients.
Working with an off-shore remote team can help achieve costs-reduction due to cheaper labor rates, at the same time eliminate delays and support the resources development programs align with PE firm strategy.
If you're an investment firm, like private equity, that looking to hire an external team to help develop your software product, it's essential that you select the right software development partner in terms of skills, expertise, and capacity. This is because sometimes opting for the biggest-size vendor may not bring the results as expected.
For example, a large investment firm may have a remote development team of 20 developers, from an outsourcing firm with a total capacity of over 10,000 developers. Although they are among the important clients of the agency, they account for less than 1% of the vendor's billable hours.
Many well-known software development companies have thousands of developers across the globe, and it could be difficult to get good results from them if you hire only a very small percentage of their software engineering pool. Therefore, partnering with small and mid-sized vendors can be the key to getting the attention and results you need.
All in all, more and more investment firms are choosing to partner with external software development vendors for their ongoing software projects because building a large internal team, from scratch, is contradictory to the core of most investing philosophies.
To select the best suitable software development partner, it’s necessary that you conduct research and interview to find the qualified team for your projects. At TP&P Technology, we have a large team of software engineers that commit to working dedicatedly on your project. We provide the best technology, project management, and development expertise - to empower your business through IT-driven growth.
Contact TP&P technology today to find out how we can be the trusted software development partner of your firm as well as the portfolio companies. We only hire the top IT talents who know how to make your software projects succeed.