Private Equity: Who “Owns” Your Leads?

Alex Karlsen

Buy side firms serve an important function in the world of private equity.  

But the buy side model and its inherent fee structure is broken.  It creates a mix of incentives that buyers should scrutinize.  

Consider this question.  As a buyer, “When I work with a buy side firm, who owns our leads?”

This question is so frequent in our dealings with folks in the private equity world, that it seems important to address.

The answer is that most buy side firms can not promise you true ownership of your lead funnel.  

Why? Because the economic model of a traditional buy side firm disincentivizes it!

Here is why... 

Since most buy side firms are paid the majority (if not all) of their fees upon the successful closing of a deal they sourced, they are naturally motivated to share opportunities to:

  • The buyer that pays the highest fees.
  • The buyer with the highest probability of closing the deal.

That said, here is what usually happens in a buy side relationship.

The buy side firm originates a deal opportunity.  They convene internally and choose which buyer to send it to first, usually based on the criteria above.  

If/when the buyer passes on the deal, the process starts again until the seller is fatigued or the opportunity gets retired due to lack of fit or quality. Where your firm falls in the “waiting line” to see a deal is up to the buy side firm. 

If your firm doesn't have a very competitive success fee compensation structure, or doesn't have a long track record of close certainty, you can bet you are not on the top of the list.

Maybe you already know this. Maybe this doesn't bother you. Or maybe you are interested in learning about a different way to source deals.

At CAPTARGET we have developed a buy side origination process that we feel improves on the legacy standard.  Here is why:

  • We never charge success fees - we source for a modest, fixed monthly fee.
  • You own 100% of your deal flow - we do not participate in any shopping of leads, you own what you see.

How do we accomplish this?  

By conducting outreach as an extension of your firm, rather than a third party.  This means that when a company responds, they are responding to your firm's value proposition, not a generic solicitation to be acquired.  

Because the lead responds to your firm, you own the lead...after all, they do not want to just talk to anyone about being acquired, they want to talk specifically to you.  

At that point - you own the lead.  

It's that simple. We never warehouse, cross sell or refer the lead to any other buyer.  And if you close that deal, you pay us no additional compensation.

We present an opportunity to buyers to save hundreds of thousands of dollars on finders fees all while ensuring you own your deal flow.  This model has been embraced by:

  • New firms looking for cost effective ways to origination deal flow.
  • Large firms with multi pronged sourcing strategies.
  • Corporate buyers who prefer to invest in the productivity and reach of an internal corporate development team.

Are you interested in reducing the cost of closing a deal, all while ensuring the quality of your deal flow improves?

Review our Deal Origination services here. 

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