How Diversis Capital achieved real-time portfolio reporting clarity with Drivetrain

The Challenge

When Devin Scott took on the role of Financial Operating Partner at Diversis Capital, he had no idea how complex a situation he’d walked into.

His first priority was to streamline financial management and reporting for Diversis, and he knew that meant aggregating financial data from Diversis’ 15 active portfolio companies. What he didn’t know was that each company in the Diversis portfolio tracked different metrics and reported them to Diversis in spreadsheets, with no consistent formatting whatsoever. Suddenly, things got way more complicated.

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To make matters worse, as Diversis continued to add new companies to its portfolio, the companies it had already invested in were actively growing their businesses through acquisitions, which added another layer of complexity. This made getting usable data from Diversis’ portfolio companies even more challenging.  

1. No standardized set of metrics across the portfolio for financial reporting

When Scott reviewed the portfolio's financial information like growth metrics and financial statements, he saw that some of Diversis’ portfolio companies were using different formulas and methodologies to report performance metrics. Their financials also differed in terms of what they consider adjustments or cost of sales versus Opex and the like.

Up to that point, Diversis had been relying on its portfolio companies to provide their financial statements and, in some cases, their ARR and customer data. But Scott said they hadn’t yet developed a process for collecting this information across the entire portfolio.

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To underscore the complexity he was dealing with, Scott explained that most of the companies Diversis works with have multiple products. That meant he had to aggregate the information for all the different products across 15 portfolio companies into a few high-level “buckets” to report across 2–3 key dimensions.

This was no small challenge with all the companies sending spreadsheets with their data organized in different ways. For Scott, finding a unified approach to reporting metrics and financials across their portfolio—bringing order to the spreadsheet chaos—became a top priority.

2. Errors lurking in the pro forma financial data

It’s not uncommon for some of Diversis Capital’s portfolio companies to acquire 5-6 smaller companies in a given year. With every new acquisition, Scott had to review the pro forma financial data and reporting to evaluate the expected financial performance and any potential risk it might pose to Diversis’ investment.

Invariably, it seemed, he would find inaccuracies with their P&Ls, usually the result of human error in the spreadsheets they provided. After spending a lot of time reviewing their charts of accounts and getting an understanding of their different financial reporting methods, Scott realized that a lot of the errors were around EBITDA adjustments. Often, they were missing important adjustments.

For example, Scott discovered that one company was capitalizing its sales commissions under GAAP and amortizing them over the life of the contract. As a result, the accounting treatment of those expenses was GAAP-compliant, but without a corresponding pro forma adjustment to expense the commissions in the period incurred, the EBITDA on the pro forma P&L was overstated.

3. Limited visibility of financial data for key stakeholders

Diversis Capital has a lot of operating partners in its investment team. At times, they need financial information on specific metrics, such as a portfolio company’s retention by industry or by product. While they usually don’t need to see the data in real time, they do need the ability to see how Diversis’ different portfolio companies are performing at any given time.

Getting them the answers they needed meant Scott had to send an email to the portfolio company’s CFO requesting a spreadsheet with the data, then waiting for it to arrive. Then came the tedious and time-consuming work of wading through the numbers.

Often, the data lacked sufficient granularity, which would trigger more back-and-forth emails, and with no consistency in how metrics were defined, Scott felt like getting reliable answers always took more time than it should have. The impacts worried him. For a private equity fund like Diversis, delayed responses meant slower decision-making and the potential erosion of board and investor confidence, which is critical to its fundraising efforts.

The Solution

The realization that spreadsheet-based reporting wasn’t going to work for Diversis’ complex reporting needs, Scott started looking for financial reporting tools on software review and comparison websites like Capterra and G2.

The core problem Scott was looking to solve was similar to consolidating data across multiple ERPs, except in this case, he didn’t need a single chart of accounts or unified ledger. He needed to consolidate financial reporting across portfolio companies that each had their own metrics definitions and business logic. At the same time, he needed the ability to drill down into the underlying calculations, account mappings, and charts of accounts—all of which lived in each company’s individual tech stack.

To address Diversis’ reporting needs, Scott would first have to align financial reporting across its portfolio companies. This would require a platform that would help him create a standardized reporting layer for each company so Diversis could pull those standardized reports into its own system—all while maintaining his ability to trace any number on any report back to its source.

Scott demoed a few different platforms, but when he saw the depth and breadth of Drivetrain’s capabilities, he knew it could meet his unique requirements. In addition to its robust reporting capabilities and flexibility, Drivetrain also offered more than 800 native integrations—something he would need to standardize reporting across several companies with diverse tech stacks.

How Drivetrain helped

1. A financial reporting framework that brought order to the chaos

To build the framework necessary to align financial reporting across all of Diversis’ portfolio companies, Scott purchased separate subscriptions for each one and worked with Drivetrain’s onboarding team to get them all set up with standardized metrics and the same reporting templates. Then, he connected his instance of Drivetrain to each of theirs so their financial reports and performance metrics can flow automatically into the platform.

Now, Scott can easily explore the reports and metrics for a single company or several at once, in any dimension. “If we want to dig into ARR down to the customer level, we can do that now. For instance, we’ll be able to look at the top 20 new customers across the portfolio this past month, the top 20 churns, and the top 20 customers up for renewal next month across the portfolio, and create reports for that,” he said.

With Drivetrain, Devin has been able to implement consistent monthly reporting across the entire Diversis portfolio, replacing reporting chaos with comprehensive, complete, and comparable financial data and core performance metrics.

2. Proactively finding and solving problems with pro forma financial data

Given the acquisition activity of Diversis’ portfolio companies, Scott has to be very vigilant in his oversight because it’s not uncommon to find errors in their pro forma reports.

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In addition to inaccuracies in pro forma P&Ls, Scott had run into other issues. For example, after one portfolio company acquisition, the team didn’t add segment size to the historical pro forma ARR adjustments. As a result, retention and growth by segment size weren’t reliable for almost a year.

With Drivetrain, these kinds of problems are now easy for Scott to spot and fix early with detailed pro forma adjustments that he can append to financials so the data flows permanently into Diversis’ reporting.

3. Centralized data hub with flexible adoption across portfolio companies

Scott’s primary goal was to bring order and consistency to Diversis’ financial reporting. While this requires each of its portfolio companies to use Drivetrain, each is allowed to decide for itself how to leverage the capabilities Drivetrain offers.

Scott said all of them have found Drivetrain easy to use. A few who were already up and running with different platforms are using Drivetrain just for their reporting to Diversis, while others have fully adopted Drivetrain for their FP&A, including forecasting, budgeting, and all their financial modeling. In these cases, their CFOs have used it, realized the efficiencies and benefits, and now they want to roll it out to the rest of the management team. This doesn’t surprise Scott:

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Internally, the operating partner group is excited about having a central database and easy access to a portfolio company’s data and financials. Soon, Scott will be building out reporting dashboards for each partner.

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Impact

Scott didn’t set out planning to architect a whole new system to support financial reporting for Diversis. Fortunately, he had Drivetrain to help him.

Scott said one of the biggest benefits of adopting Drivetrain has been the ability to easily map dimensions with new values and summarize insights and analysis any way he needs to. Before Drivetrain, Diversis didn’t have that ability at all.

He’s also much more confident in the numbers and results Diversis reports during its quarterly board meetings. He’s able to present the data in a more granular way while making it easy to understand visually.

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With Drivetrain, Scott is able to surface key insights the company needs for agile decision-making and to answer questions from its board and investors—often in minutes as opposed to days.

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Key results

• Real-time visibility on key value drivers
• Standardized monthly SaaS and financial reporting across portfolio companies
• Enabled pro forma reporting for five to six add-on companies, per year, with the necessary level of granularity
• Corrected historical metric inaccuracies across nearly every portfolio company
• Improved board and investor confidence through consistent metrics and financial reporting