How to Supercharge Your Deal Sourcing Process

Introduction

In the Golden Rule of Private Equity Investing, we discussed how building and maintaining a sufficient pipeline was critical in exercising investment discipline. TL;DR - it's much harder to exercise discipline when there are limited investment opportunities.

What is a deal sourcing process?

Deal sourcing, or deal origination, is the process identifying and evaluating potential investment opportunities. It's the crucial first step in the investment process.

What does deal sourcing entail?

While every process is different depending on factors such as the transaction type, the industry, and the deal/investment size, the sourcing process typically entails:

1. Identifying Opportunities (that fit the Investment Framework)

2. Engaging Prospects

3. Building a Deal Pipeline

4. Evaluating Deals

5. Converting Prospects

What are the key components to deal sourcing?

The most important components to deal sourcing are (i) people, (ii) process and (iii) technology. More specifically, organizations that have an effective deal sourcing engine first put in place a process to identify, engage and convert prospects, and use people and technology to administer that process.

Our 10 Guiding Principles for Building an Effective Deal Sourcing Process

1. Define your investment thesis and universe, in conjunction with the Investment Framework. Define what you want to buy.

2. Identify all potential companies in that universe. Leverage databases and other tools like LinkedIn to gather company and contact data. Validate the data.

3. Load all data into a CRM and use it religiously. Ensure that the CRM is the source of truth for all activity and information related to each prospect and opportunity.

4. Craft creative outreach messaging and campaign templates to engage prospects. Customize messaging to hook prospects in.

5. Use a mix of strategies to engage prospects including direct outreach and leveraging intermediaries, advisors and warm introductions where possible.

6. Engage with targets using tailored messaging. Ensure multiple outreach attempts across multiple mediums (ie. emails, calls, LinkedIn, trade shows).

7. Be persistent. Like any sales motion, it often takes 8-12 touch points to engage a prospect for a complex sale; and M&A is very complex.

8. Gather information for promising opportunities and assess it against your Investment Framework. Determine your top prospects and over invest in building and nurturing these relationships.

9. Invest in your sourcing process. Hire great and ambitious people to spearhead outreach and nurture your opportunities.

10. Use technology to automate time intensive processes such as data gathering, initial qualification and campaign automation. Ensure that there are checks and balances. People need to regularly monitor and maintain the technology being used.

In conclusion, a well structured deal sourcing process is a critical first step in the investment process. Done correctly, it can be a competitive advantage; done poorly, it can lead to poor investment decisions.

At M-Squared Advisory, we view every client project through the eyes of an investor, drawing on past transaction experience. We have the expertise to help clients define and build an optimal deal sourcing process.

If you are thinking about investing in private companies or need help supercharging your deal sourcing process, we can help. Reach out here.