Comparing Deal Origination Strategies

Gabe Galvez

Which one are you?  How do you weigh the costs and benefits to ensure you maximize deal flow?

1. The Internally managed origination effort

Firms with internal business development staff who do not rely on outside resources fall into this category.  These firms are are either very small PE shops, where principals wear many hats, or they are much larger firms that choose to manage their origination effort at scale.

Pros of this Strategy

  • No finder or success fee cost load
  • Full visibility

Cons

  • Fixed cost model can be cost prohibitive at smaller firms
  • Requires expertise and best practices to be developed often without outside expert support
  • Requires significant process management when prospecting, tracking leads, developing and testing communication etc.

2. Buy-side firms

It seems that most private equity buyers have some relationship with buy-side firms.  This is still the most common way to scale search efforts.

Pros of this Strategy

  • Most of cost is paid on success.
  • Allows for buyers to focus on lead vetting and transaction management rather than research and outreach.

Cons

  • Requires payment of a finder’s fee and/or retainer which can be significant.  While often LP sourced funds, many firms are looking to reduce close costs in price competitive environments.
  • Minimal visibility – rarely to buy-side firms have a requirement to provide reporting or insight beyond the lead provided.
  • Leads are often not truly proprietary as the firm picks and chooses who sees what opportunity and when.

3. CAPTARGET origination

Our sourcing services are considered a ‘best of both worlds’ approach.  We combine the best elements of (1) internal sourcing and (2) buy-side supported search efforts.

Rather than representing ourselves as a third party like a buy-side firm, we act as an extension of client’s business development arm.  This means we source both direct and indirect opportunities for you.  This is all managed by CAPTARGET, including the prospecting, outreach and vetting of opportunities.

Pros of this Strategy

  • Low monthly costs with no success fee payment required.
  • Full visibility via reporting, and real time analyst support.
  • True proprietary lead ownership with all leads owned by a single buyer.

Cons

  • None! Its lower cost, fully supported and used by hundreds of private equity firms worldwide.

Choose the right deal origination service level for you firm here.

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