Prime investment opportunities are often difficult to come by, which is why deal sourcing is such a convenient tool.
However, deal sourcing has many aspects that can be difficult to understand, especially for a beginner.
This article aims to shed some light on deal sourcing, so that everyone may understand the process.
Deal sourcing or deal origination, as it’s also known, refers to a process that venture capitals, investment bankers, corporate development experts and other finance professionals use. Through this, they attempt to find investment opportunities within the market.
The purpose of this process is to ensure that they obtain a large volume of deals throughout a set period in order to keep onto a viable flow of deals.
Deal sources work by generating leads, pitching buyers, and maintaining relationships with the intermediaries. If a company wants to succeed in the market and find investment opportunities, a wide contacts network is required.
They will also need to maintain a good reputation, as this is what will mark them as credible partners and investors.
An investment company will have to use a variety of strategies if they wish to be successful in deal sourcing. One obvious step is to parent with someone that has experience in terms of deal sourcing, as they already know how to handle every step of the process.
These professionals are often hired by contract, and they will receive their compensation based on their ability to generate new leads.
When hiring an outsourced team is not a possibility, an in-house one may also be established. These people need to show experience in the financial field and show ability in generating leads.
Deal sourcing has become more and more of a necessity in terms of private equity, taking on varied forms. Deal sourcing is perfect for the companies that wish to close more deals while making a difference.
Companies evaluate more than a thousand opportunities each year, going through different channels: internal analysis, detailed research, crowdfunding, social media, outsourcing, and cold calling.
With deal sourcing in venture capital, the practice works by finding leads to directly invest corporate funds in a startup. This is an appropriate choice for companies that want to invest in a small, yet promising business. This is done through equity stake acquisition and venture agreement – often investing and financing per project.
The process of deal sourcing is quite easy to go through, as long as you understand what the main steps are. To create or improve your deal sourcing strategy, here is what you will have to do:
You can’t do everything alone here, so the first obvious step is to hire professional representatives in business development. This is particularly useful if your company is new and you need help with the streamline.
These professionals will use a mix of email, research, and also calls in order to find potential deals. If you do not want to hire a full-time team, you might want to outsource it to professionals.
To be successful, you need to choose the method that you wish to go forward with. The advice is to embrace technology and learn how to use data management, but if traditional deal sourcing is your preferred method, then you may go for that instead.
Once you finished collecting the data, you need to get a list of targets. This will allow you to fully start the project. Bear in mind that you may want to be as selective as possible, as not every company on the globe will turn out to be your target.
To help you with this, you might want to create criteria that will help determine your target metrics. This will also ensure that you won’t be going too narrow on the searches.
At this point, you are all set, so all you have to do is to find the information and populate the database with it. It may be from any available list, such as your industry. Develop those lists and ultimately mine them by using a deal sourcing platform.
When it comes to deal sourcing, you have the old way and the new way – in other words, traditional vs. online deal sourcing. Depending on your preferences, you can choose either of them or maybe even both of them.
Traditional and conventional deal sourcing has been around for a couple of decades and is a strategy that most of the established equity companies tend to use. Most of the time, by using the old way of deal sourcing, the company manages to:
Obviously, if reputable companies compete for these deals, it might take a bit longer until results are achieved. In most cases, their results depend on whether they have the ability to gather information or not.
In the past couple of years, online platforms have been revolutionizing the way deal sourcing occurs. This option is particularly useful for companies that focus on acquisitions and mergers. Online deal sourcing quickly accesses relevant market and company data, providing digestible information.
Overall, online deal sourcing brings several benefits:
Online deal sourcing is the most common option nowadays, as it is the faster alternative. However, people may also opt for a combo between the two, to increase their reach even more.
Nowadays, there are several deal-sourcing platforms for you to use, including but not limited to:
Regardless of the option that you choose, you will reap the advantages of working with an online deal sourcing platform. Bear in mind that some companies are globally-based whereas others are locally-based – which is why you need to know the reach you are aiming at.
Deal sourcing is essential when you want to create a viable flow and to find potential opportunities for investment. Deal sourcing is the fuel that keeps everything going.
If you want your private equity company to succeed, you must be careful to adopt an appropriate deal sourcing strategy. The same goes for other companies, so we hope our guide was useful and that you are eager to put our tips into practice.
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