Who Uses Equity Management Software?
Equity management software is used by equity administrators, financial analysts, and managers in different companies.
Equity administrators: Equity administrators are responsible for handling equity management systems and processes of the companies. They conduct company valuations (409a valuation) and engage in tracking company equity transactions, shareholder management, and cap table management.
Financial analysts: Financial analysts use this software to do various analyses such as scenario modeling, round and exit modeling, and waterfall analysis and analyze different financial metrics to review the company’s financial health.
Challenges with Equity Management Software
Some common challenges faced using equity management software are:
Internet connectivity: Most equity management solutions available in the market are cloud-based solutions that require an internet connection. While these tools are hosted in the cloud and can be accessed anywhere, they have their share of disadvantages also. No internet or slow internet connection hinders the smooth operation of this software and possibly leads to errors in the work process.
Finding desirable software: Finding the right equity management software is a complex process. One should select software that works well with the business. Many equity management software come with basic features suitable for small size companies. But, small-scale solutions may not be able to handle higher volumes as the business grows. An ideal solution must offer advanced features like tracking or issuing equity, compliances, maintaining compliance, receiving 409A valuation, modeling, forecasting, analytics, reporting, etc.
How to Buy Equity Management Software
Requirements Gathering (RFI/RFP) for Equity Management Software
When selecting equity management software, it is important to first look at how the business operates, and then familiarize oneself with the different types of software available. There are a variety of options when it comes to equity management software products, including those designed for the business needs of small, medium, and enterprise-sized businesses.
After understanding the requirements, the buyer can reach out to different vendors and ask for product-related information through RFP or RFIs. Upon receiving RFP or RFIs, the buyer needs to look at the features, pricing, and contract agreements to understand what problems the new system will solve. Buyers need to carefully examine all relevant information and documents before opting for the vendor and product.
Compare Equity Management Software Products
Create a long list
Depending on the industry, the buyer might want to first create a long list of software that is designed to help businesses in the particular industry. A long list always helps select the right software from many products available for equity management. The buyer should keep in mind to look at the existing software and prioritize asking what problem the new software can solve. A long list must consist of products that qualify metrics like required feature offerings, reviews and ratings from buyers, vendor add-ons, price points, and overall popularity in the category.
Create a short list
A short list narrows down the options available on the long list. It is generally done by mapping existing requirements to the offerings of the software. A short list generally widdles down the long list based on the budget.
Buyers must keep in mind, however, that the more specialized a software is, the more expensive it gets. This is the case because the user base for specialized software is usually relatively small. If the company wants something specific to their industry or customized for the business, they should be ready to pay a premium.
Conduct demos
As a rule of thumb, companies should make sure to demo all of the products that end up on their short list. Software demos are crucial to understanding how compatible the product is with existing systems and processes. It helps meet the realistic expectations from the product. During demos, buyers should ask specific questions related to the functionalities they care most about; for example, one might ask to be walked through equity issuance or tracking features, how to create cap tables, how to check investor portfolios, or how look at real-time financial data.
Selection of Equity Management Software
Choose a selection team
A team consisting of managers who will be using the software, equity administrator, IT personnel, or consultants is required for the selection process. Every business is different and the equity administrator is most likely the best person to give an educated opinion about which one is the best choice for the particular needs of the business. Collaborative communication around different functionalities of the equity management solution and collecting individual feedback from the people going to be engaged with the software would help make a better decision.
Negotiation
The negotiation process can happen upon receiving a price quote from the vendor. Depending on the available budget, the buyer can offer a price to the vendor considering all the equity management features required for the business. Buyers shouldn’t forget to ask for a discount in return for an annual upfront payment, and many software providers are happy to make that deal. Other times, a software provider may offer unlimited usage or add-ons if the buyers pay upfront instead of paying in installments. A successful negotiation means a courteous and constructive interaction that is a win-win for both parties.
Final decision
The final decision should be based on all the information gathered, features offerings, and price agreed upon by both parties involved in the purchasing process of the product. Businesses should keep in mind to select the solution that meets most of, if not all of, their requirements.
If possible, buyers must conduct a pilot program with a smaller sample size of users to identify how well the software is received. If the platform gets good remarks, the buyer should make the final purchase decision. If the tool is found to be not performing as expected, there might be some other software that meets the expectations.
