Why don't you send dynamic model to co-investors
Why do PE firms usually send a hardcoded model to their co-investors or LPs looking to invest directly in a deal when they're sharing materials? I've never been given a clear answer on this. Is it because it's easier to pressure test assumptions on growth, margin etc. when the model is properly linked up? I would think that co-investors are going to do that naturally so why make them rebuild it from scratch if you can just send a working version rather than a hard coded version. Do co-investors not find it onerous and annoying to get hardcoded versions?
I have only seen some funds do this (hard coding) but agree it is annoying to have to rebuild the links.
Definitely annoying when a GP does this and I always go back and ask for the linked model. Usually I get it if I ask for it.
Do the same for lenders. Hardcode the model so you limit the number of questions asked on underlying assumptions. Probably annoying on the other side of the table but when you send models out to 20 co-investors or 10-15 lenders you don’t want to answer 30 questions from each on what’s driving irrelevant line items in a model when you are also trying to diligence a live deal and get it locked down.
So that they don't catch mistakes which make GP look bad?
Other reason: modelling is IP, GPs need LPs to stay dumb and not become GPs, etc.
Usually it's because you want to limit the number of tabs with all the underlying detail that you send out broadly (generally to minimize the level of questioning you get from a large group of people, or at least reduce the sophistication of the questions they're able to ask even if the sheer number isn't reduced)...but it would take too much time to properly keep most links functional while deleting a bunch of tabs, so in the end it's just faster to hardcode everything rather than trying to carefully trace the impact of one deleted tab throughout an entire workbook.
Save down a new version, remove the tabs that you don't want to include in a new Excel sheet and break links in the original, no? This at least preserves links within and to tabs that stay in the model version you send.
Agreed, no time for brain drain answering lender questions while you're trying to actually close the damn deal.
1) Save a new version of the model
2) Move the tabs you don't want in another new temporary book
3) In the main model, break links with this new book (hard codes the links to the tabs brought outside the model)
4) Delete the new book with the unwanted tabs
Voilà - this keeps a model mostly functional without too many tab links and backup tabs
I unfortunately have had to send live models
Joke's on them, I ask them to run the sensitivities themselves in that case
Hahaha this is true. Although have had ppl ask me to build in additional sensitivity functions into a linked model and output in their format which really pissed me off. Prospective LP so can't really do anything about it...
Interesting to hear these responses. Almost a decade of doing PE co-investments and I have never once received a hard coded model.
Clearly, the caliber of funds that you and OP co-invest with are different. I have seen both. Hardcoded models certainly just waste time, because we end up asking for the linked model anyway. No co-invest is so attractive that we will try to replicate the linked version of their model. Building one from scratch would be easier. Two things typically happen:
1. A 3-5 day delay (and I guess) because the team needs to remove the tabs that they don't want to share from the linked version of the model, as discussed above.
2. They are too swamped and they end up sending the fully-linked model, which, sometimes, includes tabs that they didn't share in the original version. I have also seen models with hidden tabs, but anyone with any modelling/excel experience will know to check/find for them. And yes, GPs do think LPs are idiots or lazy. At least, some do.
Send the PDF at that point
Linked files can get ridiculously large too
I used to always send fully linked models. Models aren’t exactly proprietary … every single financial services firm has a dozen different templates at their disposal and the ability to build 100 more. To me, helping out the junior guy at an LP/Lender was worth way more reputation wise than having to potentially answer additional questions.
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