MAY 19th, 2022
It’s time for new M&A ideas to bloom, register for the M&A Science Spring Summit on May 19th!
Register Now!
No items found.
 min read time

The Ultimate Guide to Deal Sourcing

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. 

What does deal sourcing mean?

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 sourcing to closing

Understanding deal sourcing strategies

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 nuances in private equity

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. 

Deal sourcing nuances in venture capital 

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.

Process steps of deal sourcing

  1. Step 1: Gather Your Team
  2. Step 2: Select the Method
  3. Step 3: Get a Target List
  4. Step 4: Find the Information

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:

Step 1: Gather Your Team

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. 

Step 2: Select the Method

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. 

Step 3: Get a Target List

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. 

Step 4: Find the Information

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.

Methods for deal sourcing

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.

1. Traditional deal sourcing

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: 

  • Create reputation and trust for the investors of the company
  • Establish a wide list of referrals
  • Receive an extensive contact network

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.

2. Online deal sourcing

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: 

  • Reduced time allocated to deal sourcing, as there is no longer a need to traditionally find the data. Everything is often gathered within minutes.
  • Provides augmented data, as it stocks up information from various sources and provides the one that is relevant to you. 
  • Smaller overhead costs, as you will no longer have to rely so much on overhead costs.
  • Wide reach, as you are no longer limited to find deal sourcing in your area. You can reach every geographical point, provided you use the correct platform.
  • It is easier for you to measure efficiency and performance with online deal sourcing. 
  • You get access to essential firmographic data, allowing you to enhance your market mapping. 
  • The process is automated, so you may use that time to boost efficiency in speed in your company.

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. 

A look at deal sourcing platforms

Nowadays, there are several deal-sourcing platforms for you to use, including but not limited to:

  • Dealsuite – Dealsuite allows you to share documents and propositions through plug-and-play SAAS. With an intelligent matching algorithm, this platform should be able to provide some relevant leads, in about 73% of the cases getting a sealed match. 
  • Navatar – With more than 600 clients in over 35 countries, Navatar provides investor relations as well as comprehensive fundraising. You may target LPs here and nurture your structured processes and earn the trust of your investors.
  • DealCircle – a Denmark-based platform, this company helps startups as well as angels to get ahold of some good deals. Founded in 2013, you can say it is at the beginning of their journey still – but with that in mind, the 6 team members know how to successfully find deals. It is a good option for small companies that prefer the option of outsourcing.
  • BankerBay – This private equity and M&A deal sourcing platform is one of the most popular platforms in the world. You get access to an unlimited number of deals, and then you are connected to the right party through common interests. You just need to add your sell-side deals or investment mandates as a way for the algorithm to find the right counterparties. 
  • DealNexus – DealNexus is actually a merger between a few companies. In 2013, Intralinks bought Merger ID and PE-Nexus, both of which already had their own clients and deals. After the merger of these companies, a new company was created – DealNexus. Featuring one of the largest networks for deal sourcing, you are definitely going to find some good partners there.

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.

The Bottom Line

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.

deal sourcing ebook

Get your M&A process in order. Use DealRoom as a single source of truth and align your team.

Join 2,000+ forward-thinking M&A practitioners

Get weekly updates about M&A Science upcoming webinars, podcasts and events!

Subscribe for free
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.