how do smaller PE firms source deals?

Smaller PE firms have one of 2 different models from my experience. There are some firms that prefer to have a minimal in-house deal sourcing team and wait for middle market / lower middle market investment banks (or VC firms like say my firm) that they have longstanding relationships with. Other have a dedicated deal-sourcing team (usually hired from I-banks' 2 year analyst programs, so team of three to five 24-25 year olds who all day scour trade pubs (each usu is in charge of a different sector or related sectors, e.g. one does all healthcare/biotech, other does tech/software etc.) and they must read all trade pubs, attend industry events, and also literally cold call companies. It's inefficient, but these non bank repped deals (i.e. not "for sale" and being auction) get higher returns on average.

Luckily modern technology has made this easier. The best ones I know use pitchbook or privco to deal-source more efficiently and have reduced the deal-sourcing team from say 5 down to 2 and use those databases to screen for criteria that match their investment preferences (revenues, growth rates, whether there's already a PE firm - I'd say 90% of PE firms do NOT want to buy from another PE firm...the value and cost cutting etc. has already been sucked out of the company, though there are say 10% that specialize in these "secondary private equity" buys (like Lexington Partners, that's a big player in secondaries) but for the most part PE firms esp smaller ones prefer to buy independent private companies.

So bottom line is some rely on banks (expensive in fees and competing with other bidders....this really isn't "best practices" in deal-sourcing), others have deal-sourcing teams, who are increasingly adopting databases like PB or privco and doing first screens and not waste time cold calling unqualified leads. The second model is working better right now in terms of ROI. But each firm has its preferences, and either can succeed ultimately if done right. But overall non I-bank presented deals outperform those that are acquired via an I-bank in a "controlled auction" as even a "controlled" auction - i.e. you out bid other smart people too (the "winner's curse").

So not sure in what context you're asking (starting a new PE firm? Thinking of joining and they're telling you at first you'll be doing deal-sourcing?) If latter, ask what they do now. But if latter, the guy who sources his own deals (whether using new private companies databases - or hard work and cold calling) that end up winners are the guys who rise up. Deal-sourcing in many ways really is the key to a PE firm's returns on investment, profits to its LPs, and profits to itself in my opinion and experience.