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From Interns to Generative AI: Deal Sourcing Q&A with LFM's Jessica Ginsberg

We sat down with LFM to discuss about using tech and AI for deal sourcing.

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August 1, 2023

It wasn't long ago that dealmakers had to rely on relationships and brute-force company research to find and vet investment opportunities. Data, technology, and machine learning soon opened the door to more efficient, precise, and consistent deal sourcing methods. And now generative AI is changing the game once again.

LFM Capital is a Nashville-based private equity firm that invests in niche, middle-market manufacturing and industrial services companies across North America. We recently sat down with the firm's Managing Director and Sourcescrub champion, Jessica Ginsberg, to discuss how she and her business development team continue to harness the latest technology and AI advancements to proactively pinpoint the right deals and outpace the competition.

Question: How important is deal-sourcing to you?

Jessica: We were founded by engineers and operators who know how stuff works and how to build things. We can identify what makes a company special and interesting to us, like their use of a new piece of equipment that really speeds up or transforms the way they operate and makes them more efficient, competitive, and profitable. Our research objective is to find as many of these companies as possible and seek out the best of them.

Q: What role does technology play in this process?

J: It's crucial. It has always been important in identifying companies that share the same characteristics as those in our portfolio or those that we think are great investments in other ways. To start with, we had to rely on Google and searches with company names and "competitor" in them, or terms that might identify which companies in our universe had done something that made them particularly appealing. We had an army of interns - 10 or 12 students we'd hired from Vanderbilt - to do this work.

Q: You use the past tense. What has changed?

J: Using Sourcescrub to do that research is much, much more efficient and less time-consuming. Instead of our army of interns, we now have two or three of them doing higher-value work because having a dedicated research tool means we can move more quickly to identify the right targets. We know what makes a company special. Sourcescrub's technology means we can find that more rapidly and with more precision. And it has transformed our outreach to those companies as well.

Q: How do you expect Sourcing GPT, Sourcescrub's new generative AI tool, to further transform this research process?

J: AI-powered tools have been in use for some time now behind the scenes. While it's still early days for generative AI specifically, this is another step forward. The way that this tool can help us build a landscape of "like" companies — those with similar characteristics to ones we've identified as having outstanding potential, or that are already in our portfolio — with more accuracy and speed is remarkable. And we can use AI to identify exactly the ones we want to focus on. Every technological advance that improves the sourcing data means our target list will get even more robust.

Q: How will this transform the nature of what an LFM Capital team member will spend their day doing? And what are the limitations of AI and other technologies in private equity?

J: Refining and perfecting the deal sourcing research process means that we can focus on what is vital, and something that we can't rely on data tools to handle: Building relationships with people at these companies that we've identified. Sourcescrub can help us do the research to make each outreach e-mail feel more personal, and it also reminds us to follow up periodically.

Ultimately, though, what we do remains a people business, so technology and tools that are really helpful are those that make it easier for our people to connect with business owners they're approaching and to tell our story. Technology can give me the best target list in the world, but if I can't get that person to want to talk to me, it's worthless. My favorite response from people to who we reach out is, "I get these e-mails every day and never respond, but you sound different, and I'd like to learn more."

Q: How do you see deal sourcing evolving, and what changes do you predict lie ahead for both you and for your technology providers, such as Sourcescrub?

J: We always take the approach that we can't just keep doing what we have done in the past simply because it worked in the past. Just because it worked last year, doesn't mean that it will still be successful this year. We've got to be agile and keep our eyes open to the way the economy is changing, the way the opportunity set is changing, and be prepared to respond - and technology tools help us do that. The biggest lightbulb that has been turned on in my mind amid all this talk of generative AI is a reminder that change is constant. AI isn't just coming - it's here, so you have to get onboard or we'll miss the train.

All Aboard

Don't miss the train! Join the ranks of LFM Capital, Francisco Partners, and other  technology- and AI-driven private equity firms, investment banks, and corporate development teams. Request a demo of Sourcescrub's Sourcing GPT solution.