Deal Sourcing Platforms: 4 Best Practices for Private Equity Firms

Best practices for your private equity deal sourcing strategy.

Deal sourcing is the lifeblood of your private equity firm. And yet, research has shown that nearly 70% of PE firms in the United States close 3 deals or less in a year.

Deal sourcing activities must be the focus of your firm’s growth strategy.

Here are 4 best practices proven to improve private equity deal sourcing.

  1. Hire Business Development Professionals
  2. Leverage Data Analytics Technology
  3. Stay Top of Mind
  4. Segment Deals By Tiers

#1: Hire Business Development Professionals

Professional business development representatives are proven to improve the number of deals sourced for firms.

If you’re a smaller firm and don’t currently have a business development team, it’s best to hire your first one to three with experience and proven results. These people can help create business development processes, KPIs, and initial ROI. They will then be invaluable resources when your firm is ready to build a bigger deal team.

Business development professionals help streamline the deal sourcing process and put consistency into deal sourcing numbers.

They use a mixture of research, email, and even calls to build lists and contact new potential deals.

It’s best to have a Private Equity CRM in place for business development reps, so they have a place to keep track of deal flow management.

#2: Leverage Private Equity Data Analytics

Your firm must embrace technology for private equity firms’ to properly use the data that is being collected and created throughout the deal sourcing and closing process. There are four main benefits to using data management technology for deal sourcing:

1. Integration of disparate data: Many PE firms are still using relatively archaic tools to retain data—mainly spreadsheets, calendars, and emails. This makes it extremely difficult to answer critical questions about the efficacy of data sourcing, pipeline velocity, and closing processes.

2. Automating processes:  Follow-up emails, tasks, and reminders are just a few processes that can be automated. Leveraging automation helps ensure that your deal team leaves no stone unturned when it comes to deal sourcing activities.

3. Tracking every deal: Using CRM technology to track deals from the first touchpoint to win/loss provides your team with invaluable deal sourcing information for the future, like who’s our top-performing deal source by returns to the fund? What is our conversion rate at each stage of the deal pipeline and where do deals stall? It also helps the firm determine the ROI for business development investments to improve processes.

4. Turns data into information: Using technology means your firm can determine information such as what good vs. poor quality deals look like, what KPIs should be tracked (and how business developers are measuring up to them), etc.

#3: Stay Top of Mind 

Not all deals sourced are going to be ready to close in the next 30 – 90 days… in fact, most won’t. But an experienced business development rep knows that doesn’t mean the deal is dead.

That’s why keeping top of mind with contacts associated with deals is critical. Once an organization is ready to come back to the table to talk about a deal, they’ll remember who you are, what you’re about, and (hopefully) have a good impression of your firm.

Running investor relation campaigns to stay top of mind can be as easy as setting up a weekly and/or monthly newsletter, calling to “touch base” on an extended schedule, doing site visits, and meeting up at tradeshows or other events.

This is another area that using a CRM solution built for the needs of PE firms can be very helpful to make sure that high-value contacts are still hearing from your firm, even if they aren’t quite ready to make a move—yet.

#4: Segment Deals By Tiers

Once your deal team has a good idea of deal quality characteristics, pipeline velocity, etc. you should begin to segment deal sourcing activities into tiers from most valuable to least. For most firms, 2 to 3 tiers are more than enough.

Segmenting deals in this way helps business development reps focus their time on the most valuable deal opportunities while backfilling their time with other opportunities. It’s a more effective and efficient way to allocate time and resources.

There is a lot of churn in the private equity industry. If your firm intends to survive and thrive, deal sourcing must be the primary focus of your organization. Using these four simple best practices, your firm can improve the number and quality of new deals sourced for both near and long-term growth.

Is your deal team prepared to increase their goals? Read our Winning Deals in a Hyper-Competitive Market to learn how firms win more deals.

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