The ultimate guide to generating strong inbound Private Equity deal flow

Private-equity-deal-flow
If your network is the most important engine you have for generating inbound private equity deal flow - how do you make that engine more powerful?

The best deal flow comes from your network

In the investment, professional services, and sales industries, the search is always on for the next great outreach and outbound deal flow sourcing solution.  As a result, it’s easy to overlook the fundamentals that have governed how deals are done for centuries. One of these simple premises: people do business with people that they like, trust, and respect.

This axiom holds doubly true for deals in the private markets. Investment deals are no ordinary transaction – they are generally large, idiosyncratic, and have massive long-term implications for everyone involved. There’s a reason why people describe an investment in the private markets as akin to a marriage. These elements make establishing relationships and trust even more critical in each step of the deal process – from deal flow sourcing and diligence, all the way to exit.

This perspective isn’t just axiomatic but supported by academic research – with multiple studies in this arena showing that most high-quality deals come from or are influenced by your network.

So if your network is the strongest and most important engine you have for generating private equity deal flow –  how do you make that engine more powerful?

A framework for generating more deals from your network

While human relationships are complex and multifaceted, making your network a more valuable source of high-quality deal flow can be broken down into a few simple dimensions:

  1. The number of people who have a relationship with you (direct or via your reputation)
    This can be both direct, forged by common experience and 1-1 time, or more passive – writers, artists, and others with a massive audience have a relationship with their fans, even though they may not have had direct engagement.
  2. The relevance of those people to your goals and objectives
    While relationships are valuable for their own sake, and many people have ways they can create value for you – there’s no denying that some people’s areas of focus will be more overlapping with yours. Cultivating those relationships (and adding more like them!), results in more deals flowing your way. 
  3. The strength of those relationships (+ how you treat people)
    You may be ‘connected’ to a lot of relevant people, but when the time comes to make a referral – those people will default to those they have a real connection with, or see as valuable. As a result, the strength of your relationships – the personal connection you have with them, and the value you bring to each other – is arguably the most important driver in getting inbound deal flow from your network. Importantly, a relationship’s strength isn’t static – connections you invest in can flourish, and relationships you ignore can easily decay.

This framework also suggests a set of levers for how you can continually make your network a more powerful asset for generating private equity deal flow:

  1. Determine where to spend your time and resources
  2. Deepen your connections in those domains through intentional effort
  3. Grow your sphere of influence in those areas to expose yourselves to more pathways to generate deals.

A note on the tactics to come – while we’ve put each in only one of the three categories (growing your network, making your network relevant, deepening your connections), they can be deployed across multiple. For instance, building a digital community both serves as a way to deepen existing connections and be exposed to new, relevant ones!

Step #1: Set your focus

Set your focus = better deal flow

A fundamental step in creating more investment opportunities from your network is determining your investment strategy and focus. After all, if you don’t know where you’re going, any route will take you there!  Some elements to help you inform your focus:  

  • Passion: relationship building and network curation is a long-term game. It’s far easier to invest for the long-term in areas you genuinely find interesting. In addition, your relationships will be higher quality – founded on shared interests where you’ll have more to offer.
  • Opportunity: finding great deals requires spotting and seizing on the opportunity that others don’t see (or see as clearly). Your belief around where opportunities are should inform where you choose to dive deeper.
  • Rules of engagement: none of us operate in a vacuum, and so there are likely constraints and biases that mean some opportunities may be off-limits (explicitly or implicitly). These could be defined by stage, sector, geography, or any number of different attributes – but have implications for where your time is well spent.
  • Advantages: your life experiences are unique, and likely give you differentiated access, skills, or inclinations vs. your peers. You can double down on those advantages as you build your network.

Once you have a set of areas in mind, you’ll want to identify the relevant sources of deal flow in these domains. A few categories that commonly are great referral sources:

  • Domain experts: for any particular industry vertical or function, there are usually experts in these areas with deep networks and knowledge. People ask them for advice, they dedicate resources to staying on top of the major and rising players – and as a result, they’re often aware of great companies before they become broadly known.
  • Fellow investors: other investors are spending as much time as you are trying to find great investments – but not every great company will be a fit for them. This could be due to size, stage, industry focus, prior experiences, or a number of other issues. As a result, other investors – even those that are ‘competitive’ to you – can end up being good sources of deals.
  • Service providers: lawyers, accountants, insurance brokers, local banks, and others who work with business owners likely know of impressive, under the radar companies. Moreover, these professionals work every day to become trusted advisors to those owners – making them key sources of influence in beginning a conversation.
  • Intermediaries: Investment bankers, business brokers, and M&A advisors exist for the purpose of finding companies that are ready to go through a transaction process and helping them find the right investor for them. While in some domains (e.g., venture capital firms), it’s far better for the management team themselves to handle the process – these intermediaries come into contact with potentially relevant companies all the time as a result of their work.  This audience is especially relevant for private equity firms.
  • Corporate Development + Business Development teams: in larger organizations, these departments are tasked with having an understanding of the ecosystem of players that are relevant to their business. As a result, members of these teams often have unique insight into under the radar companies that are relevant to their world, key trends they’re monitoring, and where their acquisition and partnership interests lie.
  • Your portfolio companies: given their proximity to you, other operators in industries you like, and your faith in their judgment, portfolio company team members can be especially valuable sources of deal flow and information.

Once you have laid out your understanding of the relevant deal sources, you can assess your existing relationship network and how it’s currently driving your sourcing deals:

  • First, you should understand where you are winning. Some questions that can help illuminate this:
    • Where are most of your quality deals coming from? If you were to analyze the deal flow you received from inbound sources over the past year, which sources are driving most of your volume, especially those that are making it further down the funnel?
    • Where is your “share” of deal flow the highest? Some people may not send a high volume of referrals, due to the nature of their work and network. But when they are connected to companies that have successfully raised, are they putting these on your radar?
    • Qualitatively, which domains do you feel confident about the strength and depth of your relationships?
  • You’ll also need to identify where the gaps in your current network are. Some questions to help identify these areas:
    • What deals did you miss? A data-driven way to ground this conversation is to use Pitchbook, Crunchbase, Sutton Place Strategies, or similar, and pull together a list of deals completed in your strike zone in the past year that you never saw. You can then cross-reference that list of deals with the participants and your network – allowing you to identify relationship gaps.
    • Where are you missing coverage? If you were to slice your network by deal source type, geography, industry, or other areas of focus – where does it seem you have little density? In some cases, that may be a function of the domain – for instance, there may be few accountants that work closely with AI companies specifically. In other domains, this may point to an opportunity to bolster your deal flow network.
    • What categories do you have weak relationships with? Even where you have relationships, it’s likely that some are weaker than others, which has implications on the volume and quality of deals you receive.

From here, you can make a plan, composed of doubling down on your strengths, while attacking some of the gaps you’ve identified. One way to make your prioritization decisions easier is to run them through the following test:

  1. How many new quality deals would come my way by successfully building (or strengthening this relationship)?
  2. How difficult would it be to sufficiently strengthen them to see those benefits?

With a plan in hand to generate more deal flow, it’s time to execute. The next two sections (“Deepen your connections” and “Grow your network”) give you the tactics to help you achieve relationship building and deal generating success.

Step #2: Deepen your connections

Deeper connections -> stronger deal flow.

1-on-1 relationship building

While relationships can get stronger in a group setting (which we’ll cover later on), connecting with someone 1-on-1 is always a powerful way of getting to know someone on a deeper level.

As you engage, it’s easy to focus on the transactional and tactical (e.g., what deal flow are you looking for, and how does that overlap with my goals?). However, remember that people do business with others they trust and respect – if this person has the choice between referring a deal to you and someone else, it’s unlikely this approach wins you a referral. Instead, devote real time to building both a personal and professional connection. Some topics to help you create that:

  • Personal backstory: Where did they grow up? What has their personal and professional journey been to get to this point?
  • Interests and family life: What are their priorities outside of work? Do they have a family? What are their hobbies?
  • Their objectives: What does success look like for them, both personally and for their team? What are they focused on? What are they trying to learn more about? Where could they use additional support and resources?

When you have a richer perspective on who a person is and what they care about, you not only build relationships that last beyond any given deal – you’re far better positioned to create value for each other (including deal flow and referrals).

You can’t just expect that richer perspective to automatically translate into a robust (and deal generating) relationship. Most relationships only get stronger through regular interactions that reinforce your connection. Some ways to help your relationship go further:

  • Help them meet their goals: this can take many forms on both a personal and professional level
    • Sending them research reports, news, and other notable information about an area they’re trying to get up to speed on – or that ties to a personal passion of theirs.
    • Amplifying their work – sharing content they produce and purchasing products and services they create
    • Connecting them with experts that can be a valuable part of their network
    • Making introductions and referrals to others in your network that fit their area of focus
  • Show a genuine interest in them and their lives, and show how they’ve impacted yours:
    • Connect over hobbies: if you both enjoy golf, suggest that they join you on your next golf outing. Or you can get a run in together before the start of a conference you’re both attending.
    • Engage on events that impact them: when they or their company has been in the news recently, have closed a major deal, or even when they’ve got a freak weather storm in their area – all represent opportunities to check-in and make the relationship stronger.
    • Close the loop: let them know if something they’ve done (books they told you about, etc.) was helpful. If they’ve sent you deals, respond back with a thoughtful note about your decision-making process and thank them for the opportunity.
  • Set regular time aside to reconnect:
    • Recurring meetings: as the relationship grows (and especially if the work you do overlaps materially), it may make sense to put regular time on the calendar – both to catch up more generally, and to share opportunities each way. These can be calls, coffee, lunches – whatever makes the most sense for your schedule and logistics.  Getting deal flow and referrals requires staying top of mind.
    • Opportunistic: You can also use travel to their city, or other emergent events in the world as moments to authentically engage and build connection.

Community building

Relationships aren’t just one-to-one, or one-to-many (e.g., content) – some of the most powerful connections we have are in a group context (many-to-many). By bringing people together around shared interests and passions, you help people form valuable bonds and share resources to accelerate each other’s progress. You create a virtuous cycle where you all become smarter and better, together.

In addition, you may be introduced to new connections, companies, and themes that help you in your quest to find your next great investment or build your deal flow funnel.

Hosting Events

One way to increase the value each community member gets from your interactions is identifying a commonality or interest they all share, and structuring the guest list and agenda around those topics. Similar to company building, the list of spaces and niches can spark your thinking:

  • Function: Similarly, bringing together people in specific functions you find interesting to discuss common challenges, tools, and case studies of success can be another powerful way to create community.
  • Challenge: One commonality of building and running a company is that there are always problems – and while not all situations are the same, there are often common pain points and transferable lessons. Many companies struggle with recruiting great talent fast enough, scaling operationally, building communities (meta, I know), and many other issues. By building communities to discuss these topics, you don’t have to have the answers – just access to people that can bring insight.
      ⭐️ Good examples:
    Atlas Holdings’ Atlas Leadership Academy
  • Trend: As new technology and cultural waves emerge (e.g., VR / AR, AI, remote work), the ripple effects have huge implications for how we work and live. Your events can help people better understand these implications across multiple dimensions (industries, functions, roles, etc.).
      ⭐️ Good examples:
    Industrial Exchange (Industrial Technology)
  • Geography: Being in close physical proximity is enough to generate value.  Each geography comes with a unique set of challenges, advantages, and cultural perspectives worth exploring.
      ⭐️ Good examples:
    Chicago Real Estate Private Equity Network

Digital community building

While events require getting people together at the same time, you can also build community asynchronously by using digital tools to spark and maintain connectivity.

Some examples:

  • Online chat/discussion groups: similar to themed events, getting people together to discuss topics of mutual interest and share generates value for everyone.
      🔌Good resources:
    Slack
  • Email distribution lists: Not everyone wants to join a new platform – so an easy place to default to for conversation is the email inbox. Setting up a common distribution list reduces the friction to sharing and conversation amongst your group!
       🔌Good resources:
    Google Groups
  • Portals/forums: You can also invest in building out a more robust and customized set of functionality and resources for your community. These can be as lightweight as a Google Drive folder or an Airtable sheet with links, or a custom-built solution that integrates all the core tools you’d like to have.
        ⭐️ Good examples:
    Techstars Connect

Physical space creation

Most of the methods of community building so far create structured formats to engage. However, a tradeoff that comes with structure is less serendipity. The random hallway conversations that often move relationships to a deeper level are hard to manufacture. One way to enable more moments like these to emerge is through carving out a physical space for more impromptu interactions. Some firms enable their portfolio companies, common co-investors, and friends of the firm to work out of their offices, and have extra space that they maintain for this purpose. While non-traditional, these can be great sources of deal flow over time.

Gifts

Free swag is a classic way to denote a friend of a firm (portfolio founder, advisor, close collaborator). In addition to the natural, relationship building goodwill that a gift generates, each use is a durable reminder of you – helping you stay top of mind in an increasingly hectic world.

One of the most common (and most parodied) is a vest or jacket (extra points for Patagonia) with the firm’s logo – but there are tons of other apparel (socks, shirts, sneakers, backpacks) and non-apparel (pens, mugs, playing cards) options out there. When executed well, your swag can become a status symbol of its own!

🔌 Good resources: A swag provider’s list of popular items

Step #3: Grow your network

Content

Guest posting

In almost every domain, there are publishers who are seen as trusted sources of news or insight. These usually come with two important kinds of currency: an audience, and credibility. Many are often interested in publishing the work of others, so long as there is a unique perspective you can bring to bear. This is true of both digital media businesses (whose business relies on them being prolific), as well as bloggers who write to share what they’re learning (or often to clarify their own perspective).

🔌 Private Equity focused publications: Pitchbook, Private Equity International (and their sub-brands like Buyouts Insider), The Deal

Writing email newsletters

Email newsletters continue to be popular ways to build mindshare – when your audience is heavily engaged with their inboxes, meeting them where they are is a strong recipe for engagement. This is particularly true with the rise of newsletter + audience management products. These typically have one or more of the following:

  • Third-party curation: helping people sort through the high volume of content/products generated on a daily basis to surface the pieces worth their time to consume (ideally with commentary around why it’s worth the reader’s time or money).
  • News + round-up distribution: these are probably the most common, and include announcements of major news (investments, new funds, new team members). For funds that are active in other content formats, this can also include a round-up of prior work created.
  • Content + course distribution: these are new pieces developed specifically for newsletter distribution, or courses that help readers level up in a specific area of focus.

⭐️ Good examples: LLR’s learning hub (and newsletter)

Maintaining a blog

Though it’s rare for a private equity investor to maintain a blog of their own, many funds have an area for content they’ve generated and market publicly.  In addition to serving as a more permanent home for content your team has created/been a part of, blogs have the ability to range from quick, 2 paragraph perspectives on what you’re seeing in the market (or answering common questions) to in-depth research pieces that demonstrate your understanding of a space.

You can host this on a site of your own, or on a publishing platform (e.g., Medium). Quickly running through the advantages of each:

  • Hosting your blog on your own:
    • Control of experience: because you’re not constrained by the design aesthetic or philosophy of the platform provider, you can customize your reader’s experience to best fit your goals.
    • Ownership: your subscriber base is yours – which allows you to more easily utilize it for other (non-blog related) endeavors, and retain it if you decide to switch platforms.
    • SEO: generally less of a focus for an individual investor or fund, but there are material SEO benefits from publishing on your own domain.
  • Publishing through Medium or similar:
    • No set-up required: with a few clicks, you can start writing – limiting the time and energy that often comes with having a lot of control.
    • Built-in distribution: enabling your ideas to be read by a broader audience and maximize exposure.

To get the best of both worlds, you’ll often see people publish content on their own web presence, and then re-publish on Medium.

⭐️ Good examples: Vista Equity Partners’s insights hub

Podcasting

Podcasts are exploding as a content consumption format for both educational and entertainment purposes. With that explosion comes an opportunity to build relationships and attract people interested in your views – which increases your surface area for interesting deals. The two most common approaches we’ve seen:

  • Getting on podcasts as a guest: one approach is to serve as a guest on an existing podcast. Similar to guest posting, so long as you have a unique perspective to bring to bear, this allows you to get exposure to a pre-existing audience and start building a relationship.

      🔌 Relevant podcasts: Private Equity Funcast, Middle Market Growth Conversations, BDO Private Equity PErspectives Podcast

  • Making your own: you can also choose to build out a podcast presence of your own! Some common formats:
    • Interviews/case studies: finding domain experts, or CEOs / operators with unique stories to tell, and answering good questions to help the lessons/insights from their experience come to light.
    • Roundtables: discussing news, trends, or a specific area of focus by pulling together a set of experts in your network who understand the issues at hand deeply.
    • Q&A: soliciting and answering questions from management teams, on the belief that those answers will be relevant for a broader audience.
    • Knowledge sharing: especially relevant when you’ve got domain experience of your own to share (e.g., the top 5 lessons learned to navigate the next economic downturn).

Video

  • These could be recorded videos from events or webinars you’ve put together (see the events section for more on those) or specifically developed content. The formats tend to be quite similar to ones in the podcast section:
    • Interviews/case studies
    • Roundtables
    • Q&A
    • Knowledge sharing

⭐️Good examples: Vista Equity Partners displaying their commitment to executive team support

Social media

While social is also a distribution channel for content, these mediums also represent an opportunity to learn, share, and build – relationships, brands, communities – which can also generate deal flow.

LinkedIn

There are subsets of the private market ecosystem that use LinkedIn as a place to share what they’re learning, resources they find valuable, or catalyze conversations amongst their connections. If your LinkedIn network is curated enough, it can also be used to stay on top of some of the events happening in your network – including job changes, deal flow, or posts they’ve published.

In addition to your existing network on LinkedIn, there are a number of professional associations and groups on LinkedIn that you can join – amplifying the number of conversations you can participate in and providing a source of relevant people you can include in your network.

While the noisiness of LinkedIn can be tricky to navigate, it certainly can be a solid relationship-building tool when used well.

⭐️Good examples: Jordan Sellick (DebtMaven)

Facebook

Relationships blend across personal and professional lines more than ever in today’s world – and so it’s quite common to have predominantly professional connections now as Facebook friends. While not all of your professional relationships will be open to connecting here (and you might not be excited about the prospect), you’ll often see a different, more personal side of your connections on Facebook than you would in other areas.

Similar to LinkedIn, there are also a number of high-quality Facebook groups with industry practitioners that you can join. This is especially true of specific verticals you’re focusing on – with Facebook’s scale, there’s vanishingly few professions or interests that don’t have groups with thousands of members. Plugging into these groups gives you a direct pulse of the core concerns impacting their day to day work, and allows you to hear about companies you should be tracking for deal flow purposes.

Twitter

Twitter isn’t as popular in private equity but can be a goldmine of relevant information about key events happening in your areas of focus. For any niche, there’s an active audience on Twitter engaging around the relevant topics of the day.

One of Twitter’s defining features is the speed of information transmission – which allows for your commentary and influence to spread quickly. In fact, there have been a number of investors that have built strong relationships and audiences essentially out of nowhere, due to their mastery of the medium.

⭐️Good examples: Joe Burkhart (Saratoga Investment Corp), Bronwyn Bailey (First Republic)

Attending Events

Having a presence at and piggybacking off of pre-existing events also allows you to build relationships with relevant stakeholders. Similar to the above – depending on the industry you’re in and your areas of focus, there’s likely a host of events that already exist that you can participate in (e.g., ACG events, SaaStr for enterprise software companies, Expo West for food and beverage companies). There are also general meetups where other investors congregate that also serve as great opportunities to reconnect with community members.

Outside of just attending the event, below are some other common ways of generating more relationship-building opportunities for yourself (and thereby more deal flow):

  • Presenting/speaking: getting on stage and providing your views on a market, sharing knowledge and resources, or participating on a panel are all opportunities to help others and kickstart a relationship with your fellow speakers and audience members.
  • Sponsorships: through in-kind or monetary support of an event, you are rewarded with different opportunities to get yourself and your firm in front of others – including premium brand placement, speaking opportunities, and private events.
  • Organizing side events: Putting together curated dinners, outings, or other gatherings allows you to build a tighter bond with specific people you want to deepen your relationships with.

Conclusion

Few firms would disagree with the premise that your success is largely driven by the volume and quality of the opportunities your team is able to source.  After all, you miss 100% of the shots you don’t take (or never get the chance to shoot in the first place).  

Though that perspective is true, that statement is focused on outcomes (which you can’t control) vs. being focused on drivers you can control.  A more useful statement: your success is largely driven by the strength and quality of your relationship network.  We hope this guide inspires you to take the steps to maximize it to its fullest potential.

And if you’re looking for software to help you maximize that network, take a look at our Private Equity CRM.

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