How Top Funds Enhance Their Deal Origination Efforts
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What is deal origination?
Deal origination is the process by which venture capital, private equity or other financial service firms identify investment opportunities. When it comes to brokers and corporate finance houses, these can be either buy-side or sell-side opportunities on capital markets.
Whereas the deal origination process traditionally happened through a company’s referral network, today, most funds will have a dedicated origination team that makes use of online deal sourcing—in an attempt to streamline and diversify deal flow and business development. Here, we outline the most popular approaches taken by ambitious sourcing teams across venture capital, private equity and corporate finance houses, and how platforms such as Beauhurst can ensure you have first-mover advantage.
The traditional approach to deal origination—and why you can do better
Traditionally, venture capital and private equity firms relied on their referral networks to source deals. Financial services companies partnered with professional services like consultants, lawyers, and accountants for their day-to-day operations, often using these networks to exchange clients and prospects by referral. For instance, consultants working for a big corporate finance house might also audit an SME that needs help with fundraising from the corporate finance firm. Different venture capital firms specialising in different size deals might also refer prospects to each other if they feel like the other fund would be a better fit.
One of the main benefits of this approach was that it brought in prospects from a trusted source, without having to put in much legwork. It also helped to maintain a firm’s reputation within the financial ecosystem, attracting inbound leads in an organic manner, whilst also building relationships.
These days, however, most VCs no longer solely rely on this method of deal origination. Many private equity firms have discovered that a more proactive approach ensures a more reliable and varied deal flow. Simply waiting for prospects to come your way makes it impossible to find the best opportunities, and means you’re subject to unpredictable pipeline spikes and troughs.
Traditional methods also make it difficult to diversify your acquisition process—and therefore your portfolio—because you’re reliant on introductions from others, rather than proactively approaching the best companies in a given space. And since venture capital has typically been an opaque industry that’s difficult to break into, you also cut yourself off from high-potential founders who don’t have an ‘in’.
All in all, deal origination teams in need of more efficient pipelines have evolved beyond the referral approach and into more proactive ways to manage their deal flow. We’ll explore today’s most popular options for deal origination, and how deal sourcing platforms can boost these efforts.
1. In-person networking
Similar to referral networks, this method relies on a deal sourcer’s people skills to meet and attract new prospects. This type of approach normally takes place at industry events, conferences or social occasions.
Although you can certainly increase your volume of prospects by approaching key business owners, as opposed to waiting for an intermediary to introduce you, this method also has its flaws. It goes without saying that COVID-19 has resulted in fewer in-person events, with more restricted attendee numbers. So, whilst it’s one of the more exciting ways of sourcing deals, in-person networking is perhaps not the most reliable strategy in 2021.
Meanwhile, as helpful as name tags are, they don’t tell you much about a prospect and whether they’d be a good fit for your services. This can make in-person deal sourcing quite hit-and-miss when it comes to getting those high-quality prospects.
Want to avoid wasting your evenings talking to leads you wouldn’t approach if you knew more about their business? The Beauhurst platform has a user-friendly mobile interface that allows you to swiftly look up people you want to meet. Our Networks feature also maps out ways in which you might be connected to them so that you can streamline your in-person deal sourcing process effectively.
2. LinkedIn prospecting
Since its launch in 2003, LinkedIn has become *the* professional networking tool. Whilst job titles used to be restricted to people’s business cards, today, they’re proudly displayed across their LinkedIn profiles. LinkedIn is an invaluable tool for deal sourcing, as it allows you to not only find (and approach) relevant people at prospective companies but also basic information on those businesses, such as a headcount and distribution of employees across each function.
LinkedIn is a great tool for making sure you’re approaching the right people at target companies. But its deal origination potential is still limited. Financial information (such as EBITDA) isn’t included on LinkedIn company pages, and it’s often hard to assess which companies are well-suited to your services based on their website alone.
In this regard, Beauhurst works particularly well alongside LinkedIn, by providing in-depth information on recent company fundraisings, grants and press mentions. All this is searchable across the Beauhurst platform, making very specific deal sourcing seamless. We’ve even added LinkedIn page links to businesses’ and individual stakeholders’ profiles (for convenience when switching between the two platforms).
3. Building your brand
As the number of funds deploying capital in the UK continues to climb, and each deal becomes more competitive, brand building is becoming an increasingly important tool for generating inbound leads. Establishing a good reputation in the industry means that the best-performing startups are more interested in working with you, at a higher mark-up.
The Beauhurst platform is an excellent tool for producing thought leadership on the industries you’re focusing your origination efforts on. Our Explore function makes it quick and easy to get a birds-eye view of any high-growth industry, and enables you to spot relevant trends in the market. We even have drag and drop visuals to help you write articles or social media posts.
4. Checking the news
Another approach to deal origination is scanning the news for prospects. Whilst this is great for having your finger on the pulse, it’s also one of the least efficient methods for tracking an industry. It requires a lot of time to switch between different media sources, and is more reactive than other methods—as there’s no way to control the volume of companies that come your way. Luckily, we’ve done all this for you.
The Beauhurst platform tracks UK company news, day and night, to give you a customisable summary every morning. This way, if an early-stage startup secures a deal with a retail megagiant, you can be the first to reach out, congratulate them, and introduce yourself as a potential funding option now or in the future.
Or perhaps you’re only interested in companies that have already received a certain level of funding. Well, you don’t have to trawl multiple sources each morning or set up countless Google alerts to stay in the loop. Beauhurst tracks every equity fundraising in the UK’s high-growth space—even the 70% of deals that aren’t announced to the public.
Having a complete view of the UK equity market allows you to see which companies are garnering investor attention—whether that be angels, venture capitalists, or a friends and family round—so you can approach them at the perfect time. This makes it easier for you to plan and curate your deal pipeline, and avoids the pitfalls of relying on referrals. Why not book a demo to find out how we do it?
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