If the past few years have shown private equity and investment banking dealmakers anything, it's that being proactive and data-driven is how you succeed. Learning all you can about your firm's target markets, finding hidden opportunities, improving process efficiencies, and creating your proprietary advantage is how you win deals.
Put simply, data is the key to survival. That's why the most successful organizations utilize a deal sourcing platform. But what exactly is a deal sourcing platform, and how do you know if you've found the right one for your firm? Keep scrolling as we break it all down!
A deal sourcing platform primarily helps private equity, venture capital, investment banking, and other types of investment-focused financial firms find new investment opportunities. However, these platforms can also help with many types of research within the public and private markets, including identifying and understanding certain companies, mapping ensure industries, and delving into specific sub-sectors.
As such, deal sourcing platforms have a lot of data on companies of all types — transacted and non-transacted, public and private. Because the software is designed to help dealmakers evaluate potential transactions, it's often a critical part of every step in the mergers & acquisitions (M&A) pipeline.
A deal sourcing platform radically simplifies and streamlines the process of identifying potential investment opportunities. No matter the type of deal your team may be going after, a deal sourcing platform excels at speeding the research process and making it far easier to source and evaluate companies that match your team's investment thesis.
It also helps firms be more data-driven throughout the entire M&A process. A deal sourcing platform can help you become far more knowledgeable about a particular industry and identify deal sweeteners, such as add-on acquisitions, before ever arriving at the table. More advanced, AI-powered solutions can even help your team smooth the more arduous parts of the deal, such as crafting personalized outreach, doing due diligence, and completing post-transaction integration.
While we'll do a deep dive into the critical capabilities that the best deal sourcing platforms have a bit later, at a basic level, deal sourcing platforms must:
A dealmaker's job is no easy feat, so a deal sourcing platform is an extremely helpful tool. Rather than manually scrub the Internet or hope for an inbound lead to be "the one," dealmakers at all types of firms use private equity deal sourcing platforms to actively and efficiently search for potential investment opportunities.
Many firms follow an investment thesis, which helps them focus on and sets guidelines for companies that fit their growth goals and portfolios. Deal sourcing platforms can use a firm's thesis to surface ideal targets. Further analyzing the wealth of data sourcing platforms have to offer gives dealmakers the ability to identify and follow industry or even macroeconomic trends.
More advanced solutions can also help firms identify undervalued or underperforming companies, including those that may be actively seeking a capital injection or to be acquired. These platforms then hook into the rest of the firm's tech stack and notify dealmakers of potential networking opportunities to make events such as conferences even more valuable.
As with all software, deal sourcing platforms are not created equal. To help dealmakers create their shortlist, we've collected some of the top choices.
One of the most advanced private equity deal sourcing platforms on our list, Sourcescrub uses human-in-the-loop machine learning to connect data from across nearly 200,000 sources and validate it to ensure the highest accuracy. The solution focuses largely on low- to mid-market companies and excels at providing dealmakers data on private markets and industry conferences, with deep profiles on 15 million companies and counting.
Sourcescrub offers the ability to request a demo on its website so you can see its advanced capabilities, including features such as AI-powered search, proprietary data signals, a browser extension, and integrations with top CRMs.
A popular tool for building relationships and finding sales leads, LinkedIn Sales Navigator offers professional profiles and insights for companies in all industries. Its advanced search filters help dealmakers find exactly the person or company for which they're looking, and the platform even provides personalized lead recommendations.
LinkedIn Sales Navigator is subscription-based, though it does offer a free trial to test whether it would work for your firm. It also integrates with popular CRMs, letting you surface data across the firm.
PitchBook is a deal sourcing platform that offers financial, investment, valuation, and company information across the private and public markets. Like many of the solutions on our list, it also offers integration with popular CRMs and, for more technologically-advanced firms, access to an API.
You can request a free trial of PitchBook on its website, though some reviews mention the platform has limited access to historical data and might have a rather high price tag.
FactSet combines financial data, analytics, and tools into one handy platform for dealmakers, especially those who focus on publicly traded companies. Its annual subscription-based model gives financial professionals the market data and analytics solutions — especially Excel plug-ins — to always be apprised of market changes throughout the M&A process.
Rather than pull information and deliver it to dealmakers as individual data points, Capital IQ from S&P Global instead focuses on providing insights and research from its analysts. The platform largely has information on public companies, including IPOs, equity shares, and debt offerings, and mostly provides financial information past the analyses developed in-house.
Crunchbase is a comprehensive platform that provides information on private and public companies, including funding details, acquisitions, and industry trends. The platform mostly focuses on startups and private companies, especially regarding funding rounds, investor profiles, and comparisons within industries. While Crunchbase does offer a free version, reviews mention it can have outdated information and limited functionality, so firms should likely only consider the Pro subscription.
A deal sourcing platform focused on connecting investors and M&A professionals with middle-market companies seeking capital or potential buyers, Axial facilitates targeted and efficient deal origination and networking. If your firm has or is considering developing a business or corporate development department, Axial may be a good choice to build out that function.
For firms that focus on the technology markets or are venture capital in nature, CB Insights can provide intelligence on startups within the private markets. The deal sourcing platform helps
firms use investment data to better understand markets and competitors for target opportunities, including emerging technologies and industries.
Formerly known as Orbis, Moody's offers a comprehensive database of company information and provides tools and data for many M&A activities. For firms that operate globally, the solution can help identify opportunities across borders and even deliver financial information based on country-specific requirements.
Many deal sourcing platforms specialize in collecting data about certain types of companies and offer different features to match, so choosing the right platform for your firm and its investment strategy is important. Here are the top criteria to help you evaluate your next private equity deal sourcing platform:
Software is only useful if it can be used. Therefore, your first qualification for assessing a deal sourcing platform is evaluating its user interface and how easy it will be for your dealmakers to adopt and, more importantly, use on a regular basis. Pay close attention to the platform's onboarding process and how quickly your team picks up processes during the demo or free trial period to see if it will be something your team uses and finds valuable.
Being the only one at the deal table is incredibly unlikely, but no one likes coming into a transaction to find tons of other interested parties. At the worst, you overpay for an investment. At best, you've wasted time on an impossible deal. A deal sourcing platform with a high depth and variety of company data — and the quality to match — can help ensure you identify top targets earlier than anyone else, and spend time chasing only the opportunities with the most potential.
Siloed data helps no one. For your team to work seamlessly together, each person must be working from the same information. Your chosen deal sourcing platform must be able to "play nice" with your tech stack, from browser extensions to API access.
Many of the top private equity deal sourcing platforms have a subscription-based model, but each varies wildly in cost. Ultimately, the value of a deal sourcing platform far outweighs its price, but it's still an important consideration when evaluating your top choices.
Even if your team quickly picks up and starts using your chosen sourcing platform, it's still important to have ready access to customer support and training resources. They can of course help with any troubleshooting, but many also offer best practices and suggestions for how to best use the solution. When deciding on your next deal sourcing platform, ensure you know what's available — and when — for onboarding and beyond.
During your evaluation process, perhaps the most valuable source of information will be from the deal sourcing platform's current and former users. Popular sites like G2 and Capterra often have thousands of reviews you can use to aid your team's evaluation.
It's no understatement that you have a lot of options when it comes to deal sourcing platforms. A quick Google search will return over 15 million results, making the process of choosing a deal sourcing platform for your firm an overwhelming process.
To help, we've identified the top 5 capabilities the best deal sourcing platforms should all have:
For any private equity, venture capital, or investment banking firm — or even corporate or business development teams — data is your foundation. It's how you find potential investments and how you evaluate them. So, one of the key "features" of your deal sourcing platform must be the type and amount of data it puts at your disposal.
Of course, it's relatively easy to find info on public companies, but for private companies, it's a whole other story. And bootstrapped, or pretransacted, company data makes that challenge even more difficult.
If your firm is on the lookout for early-stage, proprietary opportunities, it's important to choose a deal sourcing platform that offers more than what you find on a company's website. From basic profile information like industry and founder contact details to data that indicates larger trends, (e.g., a large uptick in current job openings and employee counts can signal rapid growth), the best deal sourcing platforms will have it all.
Especially with its recent explosion in popularity, most deal sourcing platforms employ artificial intelligence (AI) to find and standardize company data. However, as good as AI is at finding data, it can't hope to truly understand it. AI lacks human context and reasoning because it's driven by algorithms.
So while many deal sourcing platforms tout their use of AI, you need to be on the lookout for options that keep humans in the loop. Meaning, humans and tech should be working together to collect, structure, and verify the data the deal sourcing platform uses. AI could first find the data, but humans help keep the models accurate and ensure data integrity and quality.
Additionally, good deal sourcing software cross-references its data. This means using hundreds or even thousands of sources and ensuring accurate data by double- and triple-checking data points before they ever reach your team. Some platforms even offer custom research options to help you quickly scrub additional lead lists.
Deal sourcing platforms use data sources like conference lists and industry guides to get the data they surface to dealmakers. The problem is that most platforms will present that data to you and your firm as a single piece of info from a single source. What dealmakers often realize is the single-source piece of data doesn't have the all-important context that helps them build robust company profiles and truly understand what to do next.
The best deal sourcing platforms mitigate this by taking a sources-first approach. These platforms weave together information from their available sources and tie company profiles to where the data about them was found. So, rather than force dealmakers to piece together bits of information, the best deal sourcing platforms provide an interconnected web of insight.
With this information, good deal sourcing platforms can also derive "data signals." These highly valuable, specific points of information give firms the ability to peek under the surface and better understand a company's true investment readiness. Data signals range from investment-focused like ownership types and funding rounds to market signals like media coverage or website traffic.
Sources-first data and data signals help firms understand companies and markets on a deeper level and make all parts of the M&A process that much more efficient and productive.
Firms are growing increasingly specialized and turning to thematic investing strategies or thesis-driven sourcing to pinpoint companies that match their specific areas of expertise. Your deal sourcing platform should make it easy for you to rapidly filter and search through thousands of companies across all its sources using your unique investment criteria. From there, it should be easy to create your own lead lists and clearly map and understand your markets of interest.
The best deal sourcing platforms, however, go one step further and empower dealmakers to distinguish "good" deals from those that offer the best fit, highest potential returns, and greatest propensity to close. They do this through custom scoring, or determining the value of and assigning corresponding weights to specific data points.
Your deal sourcing platform must then help you reach out and connect with those good opportunities. First, use the scores to prioritize the opportunities, and then use your deal sourcing platform to see where those companies are going. Networking is still a top choice for many dealmakers, and your deal sourcing platform should be able to identify conferences or events your target opportunities are attending.
Similarly, it should identify other companies attending a particular event, so you can make the most of your time there. As one VP of Research at a leading San Francisco-based private equity firm explains, "There was this one time we had zero intention of attending a particular trade show, but we found out through Sourcescrub that one of our top companies was going to be there. So we decided to go and wound up planning an entire trip around it."
Regardless of how much data you have — or even how clean and accurate it is — it isn't helpful when it's siloed away and difficult to access. Your deal sourcing platform must be able to work effortlessly with your entire tech stack to surface information to your team when and where they need it.
For instance, let's say you find a perfect investment opportunity. Your deal sourcing platform should be able to track this company and then sync that info across your entire tech stack: your CRM, MAP, and even your data warehouse and advanced reporting tools. This creates an end-to-end view of all company information, including your firm's interactions with founders, deal stage, etc.
In addition to providing data when you search for it, the best deal sourcing platforms will be more proactive, searching 24/7 and then notifying you of what they find. With your deal sourcing software as a seamless part of your tech stack, and it actively sourcing and maintaining information about potential investments, your team can rest assured they're always up-to-date and working from the most recent data.
With all the deal sourcing platforms out there, it can be tough to determine which one's right for your firm. Here are our best tips to help you choose:
First things first, you have to know where you're going to build the right path to get there. Clearly lay out your investment thesis — which includes what types of companies you want to invest in — as well as your firm's short- and long-term needs and goals. This will help you create a list of features and capabilities to identify during your search. Just don't forget to prioritize your list so you know what's most important to your team, as you're unlikely to find a platform that "has it all."
While it's an incredibly important part of your dealmaker toolbelt and your deal sourcing platform is there to help you be more profitable, they aren't free and you're likely on a budget. So, set a limit ahead of your search for monthly or annual costs to ensure you don't break the bank. Just remember to take into account the potential return from the platform, as more expensive platforms also help you reap much greater rewards.
Markets are in constant flux and, besides the data they collect and provide, deal sourcing platforms must also constantly evolve if they — and you — want to keep up with the times.
When evaluating your top choices for a deal sourcing platform, ensure it is well-maintained and has the support options your team needs to make the most of the software.
Unless the platform you're evaluating is very new, chances are there are others who have taken the time to not only try out the software in question but also leave a review about it. In addition to case studies and reviews on the platform's website, sites like G2 and Capterra are very likely to have solicited reviews from users to help you in your decision.
Ultimately, though, it's your team that will be using the platform in their day-to-day. A platform with either a free trial or a demo is non-negotiable, especially for such a critical part of your team's workflow. Any deal sourcing platform that doesn't let you try it first likely shouldn't even make your shortlist.
The right deal sourcing platform for you will help your firm build a proprietary advantage and streamline your dealmaking processes. It will have the data you need, offer the tools to help your team make the best use of this data, and seamlessly become a part of your team's day-to-day.
As the market grows increasingly competitive, a deal sourcing platform could mean the success or failure of your firm, so it's important to get your choice right. Here are the top questions to ask when evaluating your next deal sourcing platform.
Originally posted on "February 21, 2023"
