What Kind of Data is Relevant for Private Equity?

The world of private equity is shrouded in a certain amount of mystery. What data do private equity firms use when making their investment decisions? What kind of research is needed to identify opportunities in this market? With the private equity markets raising over $665 billion in 2021, up from $521 billion in 2020, the use of data for private firms is becoming more crucial than ever. This blog post will look at the data types most relevant for private equity investors and how this information can benefit them in certain situations.


The Role of Data in Private Equity


Private equity is a type of investment generally reserved for high-net-worth individuals, venture capitalists, and institutional investors. However, these opportunities are being afforded to more individual investors thanks to the JOBS Act. It is an investment strategy that involves buying stakes in companies that are not publicly traded on stock markets. Private equity firms, in particular, typically have a longer time horizon for their investments than other types of investors and often are willing to invest in companies with high growth potential.


For these investments, investors may rely heavily on multiple data sources to provide insight and justify investment decisions. These sources may include:


  • Financial data is relevant to PE firms because of the need to monitor a company’s financial health. This data can help PE firms identify potential risks and flag companies that may be in trouble. Financial data can also help firms assess a company’s growth potential, allowing them to make more informed investment decisions. 
  • Operational data is relevant to PE firms because it helps them understand a company’s business model and evaluate its efficiency. This data can help firms identify opportunities for cost savings and process improvements. 
  • Market data lets PE firms know what’s happening in specific industries and understand where there might be opportunities for companies they own to gain or lose market share. It also helps firms keep tabs on broader industry trends that could present opportunities or threats to their portfolio companies.
  • Alternative data allows firms to track a company’s performance in real-time and make more informed investment decisions.


Data is an essential part of the private equity investment process, which firms must consider when making investment decisions. Private equity firms often rely on proprietary data sources, such as data from the companies they own or have invested in, to make investment decisions. They also use external data sources, such as public market data, to corroborate what they see from their data sources. 


The Importance of Data


With the increasing importance of various types of data, private equity firms must be able to access and analyze this data to stay ahead of the competition. Firms that can effectively use data will be well-positioned to make informed investment decisions, improve their portfolio companies’ performance, and generate better returns for their investors.


Beyond traditional data sources, alternative data is becoming increasingly important for private equity firms. This data can come from various sources and helps PE firms better understand the companies they invest in, make better investment decisions, and provide more hands-on operational support to their portfolio companies. Alternative data can help PE firms corroborate what they are being told and get a complete picture of the company they are interested in investing in. Alternative data can also help with operational decisions after an investment has been made. The ability to crunch a company’s proprietary data and glean insights into broader industry trends is crucial to helping a private equity company increase its market share, improve operational efficiency, and ultimately time the exit correctly. Therefore, a practical application of alternative data can create a virtuous cycle for private equity firms: better investment strategy, selection, execution, management, and realization, driving improved returns and increased LP demand. 


Any one source of data may not provide the entire picture of a potential investment, making it critical for private equity investors to analyze a wealth of data before making an investment decision. Overall, data can help to illustrate patterns and opportunities within the private equity space.

Why are Data and Research Key in the Private Capital Markets?

Data and research are essential pieces of the puzzle regarding the private capital markets. Investors can make informed decisions about where to put their money, and private markets can attract the best investors by having access to accurate and timely data. By conducting thorough research on potential investments, investors can mitigate risk and maximize return potential.


Importance of Data & Research

Private market data provides understanding and predictions of trends, allowing investors to look for companies on a trajectory towards growth and success. Data helps identify these trends and enables investors to make more informed decisions. For example, if a company has the data to demonstrate an upward trend in annual revenue and gross profit, it can be compelling to any potential investor. Investors stay informed of private markets and make informed decisions by private companies providing up-to-date data.


Research is necessary to understand the risks and opportunities of any investment. Research helps investors see that a product or service works as intended and solves a real problem or need. Even if the revenue and gross profit look good on paper, investors won’t go for a product that isn’t solving a real problem or helping people. This is because investors need to be aware of any investment’s potential dangers and benefits before putting their money into a private offering. To make an informed decision, private capital investors need to know all they can about the company they are investing in.


Conducting Market Research

Private capital investors conduct due diligence on potential investments by reviewing various data sets and conducting company research. This information allows investors to understand the risks and opportunities associated with each asset. Research that demonstrates the viability of a product or service helps investors understand the potential return on investment.


There are multiple methods for investors to conduct market research based on private company data. One way is a SWOT analysis, allowing investors to take an in-depth look at a business and its needs to succeed by comparing its strengths, weaknesses, opportunities, and threats. In a rapidly changing market, companies that can demonstrate a trend of growth and success with minimal weaknesses are more likely to attract investment. 


Benefiting from Private Capital Research

Investors need to make quick decisions, so having access to up-to-date data is critical. Data is essential for understanding how a company’s market performance affects private company growth. The current market performance also influences an investor’s decision on due diligence on potential investments.


Private market data helps paint a more accurate picture of the company and its operations, which can be helpful for both investors and company employees alike. With accurate data, investors can make better decisions regarding where to invest based on their ROI expectations, company performance, and management effectiveness. Presenting data and research provides private companies with feedback from the market, including information about how potential customers feel, what they think about a product, or how successful a product may be compared to the rest of the market.


The private capital markets are a haven for risk-averse, long-term investors. With the correct data and research, investors can make more informed decisions and reduce the risk of investing in a company that may not be a good fit for their portfolio. Private capital markets increase transparency by showcasing company data, drawing in potential investors, and allowing more investment opportunities. Whether looking for funding or an investment, it is vital to understand how data and research can help private capital markets grow.