When evaluating fund accounting, investor relations, or investor portal software, private equity, and venture capital CFOs must ask the right questions and interpret the answers accurately. Here are key aspects to consider, along with examples of potential answers and follow-up questions to help you discern the true value of the software, and how this long-term decision will look 5 years from now.

Choose Software with a Strong Foundation to Secure Regular Enhancements 

Future-Ready Infrastructure and Engineering processes

Ensure the software is built on a modern, scalable infrastructure. Legacy systems often struggle with adapting to current technological demands.

Question: “Can your software be deployed in our cloud environment? Is your software architecture dependent on virtual machines?”

Example Answer from an Older Software Company: “Our software can be deployed in either your cloud environment or ours and is designed to run on virtual machines."

While this response indicates support for cloud deployment, it also reveals a reliance on virtual machines (VMs). This is a red flag because VMs are more vulnerable to ransomware attacks, making them a less secure option compared to containerized or cloud-native architectures. Furthermore, this setup is not optimized for modern cloud-native technologies like Kubernetes or Platform-as-a-Service (PaaS) solutions from major cloud providers like AWS or Azure.

Follow-Up Question: "Can you provide examples of how your software leverages cloud-native features like auto-scaling, microservices architecture, API-first design, and continuous deployment?"

What to Look For: Genuine cloud-native solutions will emphasize their API-first architecture, which ensures that all features and functionalities are accessible and manageable via APIs. This approach enables seamless integration with other tools and platforms, promotes scalability, and supports a modular development process where components can be updated or replaced without affecting the entire system. Look for specific mentions of "microservices", "containerization with Kubernetes", "serverless functions", "built-in CI/CD pipelines", and "API-first architecture". If the response is vague or focuses solely on hosting options, or if APIs are an afterthought rather than a core design principle, the software might not be truly cloud-native.

‍

‍

Why this Matters?

‍CFOs should prioritize software built on modern infrastructure because it has a direct impact on cost, performance, and strategic capabilities. Older software systems often lead to higher expenses, slower performance, and more frequent technical issues. These systems typically require more manual maintenance and are not easily scalable, which means higher costs and operational inefficiencies that are passed directly to customers.

In contrast, modern, cloud-native software allows companies to quickly adapt to changing business needs without the need for significant investments. This flexibility translates to immediate savings and improved operational efficiency. For instance, McKinsey notes that finance functions that have digitized more than a quarter of their work see substantial returns on investment, significantly higher than those that have not embraced such technologies["]["].

Additionally, modern infrastructure supports advanced technologies like AI Copilots, which can automate routine tasks, provide deeper insights, and enhance decision-making processes. According to McKinsey, nearly all CFOs believe AI has the potential to create significant value by improving productivity and enabling employees to focus on higher-value tasks["]. Furthermore, better support options are typically available with modern systems, including proactive monitoring and faster issue resolution, ensuring that your team can work more efficiently and with fewer disruptions.

By investing in modern software, CFOs can ensure that their firm remains agile, secure, and cost-effective, which in turn leads to a better return on investment both in the near and mid-term. This strategic move not only supports current business needs but also positions the company for future growth and technological advancements.

‍

Technical Debt Management

Investigate how the software vendor manages technical debt. Excessive technical debt can hinder future development and scalability.

Question: “What strategies are in place to manage and reduce technical debt?”

Example Answer from an Older Software Company: “We periodically review and refactor our code to manage technical debt.”

Follow-Up Question: “Can you share any recent examples of significant technical debt reduction initiatives and their outcomes?”

What to Look For: Specific examples of initiatives, such as “recent migration to a new framework,” refactoring legacy modules,” or “adopting automated testing and continuous integration tools.” Look for evidence of ongoing efforts rather than occasional cleanups.

Additionally, consider newer cloud-native providers with active clients but are relatively fresh in the market. These providers often come without the burden of extensive technical debt, as their solutions are built using modern technologies from the ground up. Their platforms are designed to scale rapidly and efficiently, which positions them to remain at the forefront of innovation over the next 7-10 years. This forward-looking approach can be particularly beneficial for firms seeking to future-proof their software infrastructure and avoid the pitfalls of legacy systems.

‍

Why this Matters?

Technical debt refers to future costs incurred when shortcuts are taken in software development, leading to higher maintenance expenses and frequent disruptions. McKinsey notes that companies often allocate a significant portion of their IT budgets to maintaining outdated systems, which stifles innovation and leaves little room for new initiatives ["].

Technical debt also poses operational risks, increasing the likelihood of system failures and security breaches. An effective understanding of 3rd party technical debt is essential for a successful long-term software relationship that keeps pace with evolving trends. Ultimately it frees up resources for investment in innovation, which translates to the value growth trajectory and a CFO's ability to reallocate to strategic initiatives and drive value creation for their own business. By assessing a vendor's potential technical debt, CFOs ensure their organizations will remain competitive and resilient, as emphasized by McKinsey, Hall Accounting, and Atlassian ["] ["].

‍

‍

Evaluating the Software’s Trajectory

Continuous Improvement Practices

Determine if the software follows Continuous Integration and Continuous Deployment (CI/CD) practices. This ensures regular updates and improvements.

Question: “How frequently is the software updated and what is the process for these updates?”

Example Answer from an Older Software Company: "We release updates quarterly. Before applying updates, we test them in a non-production environment to ensure compatibility. If our software is deployed on your cloud, we support your IT teams to help manage the update process smoothly.  Alternatively, we can create a sandbox from your production environment, apply the update, and let your team test it to ensure your legacy customizations work as expected."

It’s a bad signal if the provider offers this as their primary approach, as it suggests the software is not designed for seamless updates. Be cautious, as some legacy providers might even charge extra for these updates later on.

‍

Follow-Up Question: “What is your CI/CD process, and how do you ensure that updates are tested and deployed seamlessly?”

What to Look For: Genuine cloud-native provider will mention that they release updates frequently, often following a continues deliver or continuous deployment (CI/CD) model. This means updates can be rolled out as often as daily or weekly. These updates are usually applied automatically within minimal disruption and downtime, thanks to the architecture of cloud-native applications, which is are designed to handle updates without significant downtime.

‍

Why this Matters?

Continuous improvement is vital for ensuring that the software a company licenses remains efficient, competitive, and capable of meeting evolving business needs. For CFOs, this means investing in systems that support Continuous Integration and Continuous Deployment (CI/CD) practices. These practices ensure that software is regularly updated with new features and security patches, reducing the risk of obsolescence and technical debt. According to McKinsey, companies that adopt CI/CD can release features up to 50% faster than those relying on traditional methods.

Furthermore, continuous improvement supports better resource utilization and operational efficiency. By automating testing and deployment processes, software vendors can minimize downtime and reduce the costs associated with manual updates and maintenance. This proactive approach to software development helps maintain a high level of performance and reliability, which is essential for sustaining customer satisfaction and trust. Overall, understanding the continuous improvement practices of their software vendors allows CFOs to ensure their organizations remain agile, innovative, and well-positioned for future growth ["].

‍

Support and Telemetry

Check if the software includes proactive support mechanisms and telemetry for real-time issue detection and resolution.

Question: “What support and telemetry features are included to ensure optimal performance and quick issue resolution?”

Example Answer from an Older Software Company: “We provide 24/7 support and monitoring.”

Follow-Up Question: “Can you detail the telemetry tools and processes you use for proactive monitoring and issue resolution?”

What to Look For: Look for specific tools and features like "Azure Monitor for comprehensive monitoring," "Prometheus for metrics collection," "Grafana for customizable dashboards," "real-time alerts with Azure Application Insights or PagerDuty," and "automated incident response with tools like Azure Logic Apps, Terraform, or AWS Lambda." Generic responses about support availability without mentioning specific telemetry tools or the scope of monitoring may indicate a less sophisticated support infrastructure.

‍

Why this Matters?

The importance here is likely a given - everyone cares about the support they're getting from their software vendor, but it's important to understand what impacts support. Telemetry is crucial for maintaining the performance and reliability of software systems. Modern software solutions that incorporate advanced telemetry and proactive support mechanisms allow their staff to detect and resolve issues in real-time, minimizing downtime and disruptions for their customers.

For CFOs, investing in software with strong support and telemetry features translates to cost savings, improved productivity, and employee retention. Proactive support reduces the need for extensive manual intervention and mitigates the risk of significant system failures. This approach not only lowers operational costs but also enhances the overall user experience, fostering customer loyalty and trust.

Overall, prioritizing support and telemetry in software investments ensures that organizations remain agile, efficient, and capable of meeting both current and future demands. This strategic focus helps CFOs drive value creation and maintain a resilient IT infrastructure.

‍

Financial and Strategic Alignment

Cost Transparency‍

Ensure there is clear visibility into the costs associated with the software, including implementation, maintenance, and any hidden costs.

Question: “Can you provide a detailed breakdown of all associated costs?”

Example Answer from an Older Software Company: “Our pricing is competitive and includes support.”

Follow-Up Question: “Can you provide a detailed cost breakdown, including any potential hidden costs related to integration, customization, or additional modules?”

What to Look For: Transparent pricing structures, detailed breakdowns of costs, and clear explanations of what is included and what may incur additional charges. Be wary of vague or overly simplistic answers.

‍

Why this Matters?

Cost transparency in software investments is absolutely crucial for CFOs to manage budgets effectively and make informed financial decisions. Clear visibility into all associated costs, including implementation, maintenance, and potential hidden fees, allows CFOs to plan and allocate resources efficiently. Transparent pricing structures enable better forecasting and help avoid unexpected expenses, ensuring that the software investment aligns with the company’s financial strategy.

Investing in software with clear cost transparency also supports more accurate ROI calculations and helps justify expenditures to stakeholders. It ensures that every dollar spent contributes to the company’s strategic objectives and operational efficiency. For instance, understanding the total cost of ownership can highlight areas where cost-saving measures can be implemented, such as optimizing usage or renegotiating contracts.

Moreover, cost transparency fosters trust between the software provider and the company, as it demonstrates a commitment to honesty and accountability. This can lead to more favorable terms and a stronger partnership, benefiting both parties in the long run. By prioritizing software solutions that offer transparent pricing and detailed cost breakdowns, CFOs can ensure that their financial investments support sustainable growth and value creation.

‍

Strategic Fit

Assess how well the software aligns with your company’s strategic goals.

Question: “How does this software support our strategic initiatives and long-term objectives?”

Example Answer from an Older Software Company: “Our software is designed to be flexible and adaptable.”

Follow-Up Question: “Can you provide specific examples or case studies where your software has supported strategic initiatives similar to ours?”

What to Look For: Case studies, customer testimonials, or detailed examples showing how the software has been used to achieve strategic goals in similar organizations. Look for specifics rather than general assurances.

‍

Why this Matters?

Strategic fit means the software supports and enhances the organization’s overall strategy, rather than just addressing immediate operational needs. By choosing software that aligns with strategic initiatives, CFOs can ensure that every investment drives the company towards its broader objectives.

Investing in strategically aligned software facilitates better decision-making and resource allocation. It enables CFOs to leverage technology for competitive advantage, ensuring that the software not only meets current demands but also adapts to future business needs. For example, software that supports data analytics can provide insights that drive strategic planning and improve market positioning.

Ultimately, a strategic fit in software investments helps streamline processes and enhance productivity across the organization. It ensures that different departments can work cohesively towards common goals, reducing silos and improving collaboration. This alignment fosters innovation, as the software can easily integrate with other strategic tools and platforms, allowing for seamless operations and better scalability.

‍