Private Equity Deal Origination Best Practices

Gabe Galvez

If so, you are not alone.  In 2017 the average active middle market Private Equity firm was presented with nearly 700 investment opportunities with many larger groups touching as many as 1100 opportunities throughout the year.

Only a few years ago, a study by Parthenon Group showed that 55% of surveyed Private Equity funds plan to change their origination processes over the next 3 years. Naturally, building the deal origination mechanism to generate a high level of quality deal flow, requires a combination of people power and technology.

Below are a few recommendations to take into account when considering modernizing or augmenting your current deal origination process:

#1. Know the options

Many private equity clients we speak to, come to our door assuming there are two primary sources of deal flow; buy side firms and internal origination efforts. Buy side advisors provide added value and manage much of the process, but typically charge retainers and success fees. Internal efforts are often difficult to scale, and the fixed cost of origination labor can be high.

CAPTARGET provides a fee for service origination service that allows Private Equity firms to rid themselves of buy side fees or high fixed costs.  Our average client closes 2 deals per year that we sourced for them for just $2,000 per month.  Additionally, there are a number of deal aggregation platforms that help connect buyers and brokers to investors.  To play the numbers game aggressively you should consider adopting more than one of these strategies at a time.

Regardless of what strategies you employ, someone should be fully accountable for deal flow internally.  We find that when multiple partners curate their own deal flow there can be issues of accountability, visibility and more.  Having a team member (even a single managing director) dedicated to the effort is key, even for a small fund.

#2. Be proactive

Creating opportunities, rather than waiting for opportunities can be a great hedge as you scale your deal origination efforts.  Building a strong intermediary network, forming deal executive groups and sponsoring their transactions, establishing high visibility in a small number of verticals through trade show and thought leadership activities are all great ways to supplement your core origination strategy.  The reality is this – if you are currently vetting a handful of opportunities, the odds are not in your favor.  While there are implications with the creation of more ‘noise’ when sourcing, the best firms are almost always the most diverse, aggressive sources.

#3. Lever technology to manage a scaled effort

If you want to play the deal origination numbers game at scale, you need systems in place to manage the lead flow. EquityTouch recently surveyed Private Equity funds to find that nearly 40% of those surveyed did not use a formal CRM or lead management tool.  Managing hundreds of deals requires functionality beyond that of Microsoft Excel or Outlook email folders.  Let us not forget – the Private Equity business is one of the most relationship-heavy businesses around. Ensuring you have a mechanism to curate more relationships is key to maintaining the personal touch engagement many Private Equity professionals are used to managing.

To learn more about how CAPTARGET can help you access more deals for less cost please feel free to email us at or call us at 888-952-1777.

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