Deal Sourcing — The Ultimate Guide of 2023
Not all of us are familiar with deal sourcing. Some may not even have heard of this word ever since they started a business. But deal sourcing is crucial in opening opportunities for investments.
In this article, we will define what deal sourcing is. We will explore its importance for every business.
After this article, you will now have a full understanding of deal sourcing which opens new doors of opportunity. This will allow your business to grow in the long run. So without further ado, let’s start!
What is Deal Sourcing?
This term is commonly used in private equity and venture capital that uses various methods to source deals. Deal sourcing aims to make sure that it acquires various deals throughout a set period to keep a viable flow of deals.
Deal Sourcing in Private Equity
In private equity, deal sourcing becomes more crucial for many companies. Private equity firms invest in private companies that are not part of the public stock exchange list. Thus, it is harder to find new opportunities.
You must take note that it is normal in private equity in deal sourcing to analyze multiple investment opportunities. However, the firm will only make one investment.
Deal Sourcing in Venture Capital
Deal sourcing in venture capital is about finding or identifying leads to directly invest corporate funds in a startup. It is the origination of new investment deals for venture capitalists
It is an appropriate choice for companies that want to invest in a small business with promising outcomes. This is usually done through equity stake acquisition and venture agreement.
How Does Deal Sourcing Work?
Deal sourcing works by maintaining relationships with an intermediary and generating leads. A wide contact network is a must if a business wants to succeed and find investment opportunities in the market.
Investment companies need to utilize various strategies if they want their deal sourcing to succeed. They do this by being a partner with a company that has an experience in terms of deal sourcing. Professionals who work in dealing product sourcing are often hired through a contract.
4 Stepsin Deal Sourcing
1. Make a Team
The first step of a successful deal sourcing is having a team. You need a team because you cannot always work alone. You hire professionals in business development. This is helpful for new companies especially when you need help in smoothing things out.
The professionals you hire will use various techniques to find potential deals. This can be in the form of email, research, and even calls.
2. Select a Method
After creating a team, you must now select a method that you will utilize. You can use the traditional deal sourcing like other established companies if you prefer it. Although if you want to use technology, you can go for online deal sourcing instead.
3. Make a Target List
You now need to have a target list of potential investments once you have collected enough data. In creating a list, you need to make sure that you have criteria to help you determine your targets.
4. Find Relevant Information
This is where you begin to find the information because you are all set to find a new investment opportunity. You can use your list and mine them by using a deal sourcing platform.
2 Methodsof Deal Sourcing
1. Traditional Deal Sourcing
This is the most common strategy that established equity companies and firms use due to its length of utilization in the field. The success of this approach is dependent on the firm’s broad network of contacts, referrals, and reputation among investors.
Usually, firms compete with each other through a bidding process. Their success in getting specific deals heavily relies on gaining access to industry-specific knowledge. Therefore, the results depend on whether they can collect information or not.
By using traditional deal sourcing, the company manages to create reputation and trust among the investors of the company. It also establishes a wide list of referrals and gains a more extensive contact network.
2. Online Deal Sourcing
Online deal sourcing or online deal origination is the latest method of deal sourcing. This method slowly replaces the traditional deal sourcing techniques. Although old firms still use the traditional approach, online deal sourcing is popular with merger and acquisition firms.
Online deal sourcing easily accesses the market and company data that provide the information they can use to their advantage. Nowadays, it is the most common option due to its reliability and efficiency. However, some opt to use both approaches to increase their reach and network more.
Examplesof Deal Sourcing Platforms
Navatar provides investor relations and comprehensive fundraising. Currently, it has 600 clients in over 35 countries. It offers flexibility, insights, customizability, connectivity, and security through salesforce technology.
Dealsuite is the largest and the most active community of dealmakers in Europe. It allows its clients to share documents and propositions through plug-and-play SAAS. This platform provides relevant leads through its intelligent matching algorithm.
Dealcircle is a Denmark-based platform that helps start-ups and angel investors to get some good deals. This company was only created in 2013 but it knows how to successfully find deals. Dealcircle is a good option for small businesses that prefer outsourcing.
DealNexus is a merger between a few companies and is now owned by Intralinks. This platform serves buy-side and sell-side interest. DealNexus connects you to more than 3,800 investment banks and M&A advisory firms worldwide.
+ What is deal sourcing?
Deal sourcing is the process used to identify potential opportunity investments in the market.
+ What are the methods in deal sourcing?
The methods in deal sourcing are traditional and online deal sourcing.
+ Which one is more effective to use?
The method you should use is based on your preference.
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