Social media data is playing an increasingly important role in the decision-making process of Private Equity firms on the lookout for new opportunities.
By analysing data from platforms like Twitter and LinkedIn, private equity firms can get a better understanding of a target company’s strengths and weaknesses, and a more nuanced look into its position within the market. This information can be extremely valuable when PE firms are deciding whether or not to make an offer, and for active investors to help guide their strategy.
While some private equity firms are still relying on traditional methods of due diligence, others are exploring the applications of alternative data including social media and review data. For those who can harness its power, it can be a major competitive advantage.
A Long Time Coming
Social media isn’t exactly a new phenomenon at this point, yet it’s not until recently that PE firms have considered social media analysis a viable way to make investment decisions. So what’s changed, and why has it taken so long?
One of the main reasons is the advancements made in machine learning and natural language processing (NLP) technology. In the past, extracting useful information from unstructured data was a time and resource-consuming procedure. Until recently, simple social media monitoring tools provided sketchy insights, riddled with inaccuracies: understanding human language is hard for computers.
Now, however, companies at the cutting edge of NLP research and technology are creating tools that provide private equity firms with accurate and actionable data. This is giving PE professionals the ability to make better-informed decisions, faster than ever before.
Private equity professionals, more than most, are reluctant to move away from familiar legacy systems. But Big Data looms large as an unavoidable elephant in the room – filled with potential for more risk-averse decision-making. Private Equity firms are realising that if they want to stay ahead of the curve, they need to start utilising the data that’s available to them.
Slowly but surely, PE firms are integrating advanced data processing tools, and training professionals to make the most of them.
Growing confidence and literacy
A new generation of private equity professionals is coming of age, and they’re more comfortable with technology than ever before. They’re also more aware of the potential benefits that data can bring to their industry.
This increased confidence is being matched by a growing literacy around data and analytics. More private equity firms are recognising the importance of investing in training programmes to ensure their professionals can understand and utilise data technologies effectively.
Simultaneously, tech companies appreciate the importance of creating intuitive platforms and data visualisations that are easy to understand and navigate.
All of this means that the adoption of data processing technologies is slowly becoming more widespread throughout the private equity industry, though the industry as a whole still falls well behind the adoption curve.
Ways Private Equity Firms Use Social Media Data
So what exactly are private equity firms looking for on social media? Here are some of the ways PE firms use social media data to help them make more risk-averse decisions:
To get an understanding of a company's competitive landscape
One of the main ways private equity firms use social media data is for market intelligence. This includes understanding a company’s competitive landscape, keeping track of industry trends, and monitoring customer sentiment.
One of the great advantages of using social media data is that it’s easy to get a like-for-like analysis across competing companies. Symanto makes it easy to track multiple brands, what their customers are saying, how they feel and even the psychographic profile of their customer base. This information can help PE firms understand which companies would benefit most from investment, and identify which companies cater to an untapped niche of customers.
To assess customer sentiment around a brand
Another way private equity firms use social media data is to assess customer sentiment around a particular brand or product. This involves monitoring social media posts for negative comments and reviews. With Symanto, sentiment is measured by topic so that you can see where the problems lie within the company.
For example, are people unhappy with faulty products, poor customer service or price points? These insights can help private equity firms assess whether the problems occur at a surface level or are indicative of deeper issues within the company.
This information is also extremely valuable for board members to help them make more informed decisions about where to allocate their resources.
To identify any potential red flags such as reputational risks
Social media can also be used to identify any potential red flags that may exist within a company. This includes anything from financial irregularities to instances of employee misconduct.
To gauge employee morale and engagement levels
Private equity firms also use social media data to gauge employee engagement and commitment. This is important because it can be indicative of how motivated employees are, and whether they’re likely to stick around long-term.
As well as traditional social media channels (Twitter, LinkedIn, Facebook, etc.) AI text analysis software can also analyse employee reviews (for example, GlassDoor) and even internal communications such as company emails and Slack messages.
Challenges of Using Social Media Data
Social media data is, of course, not the panacea for private equity firms. Several challenges need to be considered when using this data.
Social media only tells part of the story, and it’s important to take care not to draw inaccurate conclusions from incomplete information. It’s important to remember that not everything that is said online is true and that there is always a risk of misinformation. For example, negative reviews could be written by disgruntled employees or competitors. However, they can still be a springboard for further investigation. Recurring negative reviews also indicate that there might be some truth to them and are worth taking seriously.
Accuracy of technology
NLP technology has come a long way in a short space of time. Outdated technologies won’t give you an accurate picture of sentiment, and could even do more harm than good. It’s important to make sure that you’re using a reputable platform from a company that’s committed to staying up-to-date with the latest research and technology.
Bias in data
Another challenge is that social media data can be biased. One of the reasons is people are more likely to post about their negative experiences than positive ones. Social media users (although increasingly ubiquitous) are also not likely a representative sample of the general population.
It’s important to be aware of these biases when reviewing social media data and take them into account when making decisions.
Privacy and data security concerns
Finally, private equity firms need to be careful about privacy and data security concerns when using social media data. This includes ensuring that all data is collected and stored in compliance with relevant laws and regulations (such as GDPR).
Despite the challenges of using social media data, it is still a great source of information for private equity firms. When used correctly, and with the right tools, it can provide insights into a company’s reputation, employee morale and even financial irregularities.
Get Started WIth Symanto
Symanto is a leader in NLP research and technology. We offer a suite of tools to help private equity firms make the most of social media data. Our platform is constantly updated with the latest research to ensure accuracy and relevance. We incorporate the most advanced data protection technology to ensure privacy and data security and GDPR compliance.
To learn more about how we can help you make better decisions with social media data, get in touch with us today.