Sourcing Model Discussion
Questions regarding the sourcing model that many GE shops have (Summit, TA, Insight, etc.). There have been discussions in previous years but new information / data points always arise so I am starting anew in advance of on-cycle recruiting.
How much of associate compensation is tied to success hitting the phones? Is your bonus on a per-deal basis? Is your bonus based on holistic overall performance? How does comp compare to traditional buyouts / growth equity that is not sourcing model?
How much modeling / traditional PE experience is there within sourcing model firms? Or is it all hitting the phones? 50 - 50, 25 - 75, etc?
Are these firms still mostly 2 and out? Or have they gravitated more towards direct promote for the stars in recent years?
Any general thoughts regarding the value of a traditional associate experience versus that of a sourcing experience.
Thank you all in advance, and have a great evening.
Bump
Associate at a similar shop to the ones you flagged (PS, nobody uses “GE” as an abbreviation, just say “growth firm.”) Thoughts:
1) My comp is tied to holistic performance, of which sourcing-based metrics are a part (calls per week, companies brought to pipeline, etc). I would push back on a structure that was overly tied to closed deals since you can do your job in origination perfectly and still not close anything (e.g. deal falls apart in legal)
2) I do about 50% sourcing, 30% DD, 20% misc portfolio ops and investor reporting. But in general our targets are younger, high-growing companies and we do minority investing... so these businesses are much less complex to diligence versus a flat 40-year old manufacturer with multiple business lines where you’re using a ton of debt, there’s a lot of price sensitivity, etc. This is how Insight has 200 companies in the portfolio whereas a comparably sized PE firm probably has 50ish
3) We direct promote, although we lose a little more than half of Analysts to Associates and most of the rest between Associate and VP
4) I think it’s the most valuable thing you can do for a career in growth. Ask any Associate (in any asset class) what the difference between them and their MD and they’ll say something like “He / she has been around longer and seen so many more businesses and situations.” This is the quickest way to get up to speed and learn about a ton of different models and strategies. I know the high schoolers on this board like to talk about modeling as an end-all be-all but it’s a commoditized skill that doesn’t take long to ramp up on (and that you learn anyway!)
Thank you! Very informative, and I appreciate your insight on the situation and the benefits of the sourcing model.
Could someone just specifically walk through what it actually looks like to source? You walk in the morning to sit down and begin sourcing: what does that look like? How are you curating the lists of companies to hit? How are you approaching them? How are senior teammates involved? At what point does the contact chain / deal get passed off?
There’s a lot of ways to find companies (Pitchbook screens, conferences, warm intros, thematically sourcing by industry, portfolios of early stage sponsors, etc). From there you reach out, get their data, and maintain the relationship until they’re ready to do something.
Where senior team gets involved varies. If you’re good you can get a deal to term sheet by yourself with minimal senior intervention though obviously IC still needs to sign off. At my firm you’re part of the DD / portfolio team for anything you source but that may vary at other places
Interned at one of these places so can provide some context. Basically, you go in and look at all sorts of different company lists (ie those lists that are like '100 new startups to watch'), conferences, pitch book, all sorts of junk like that. Go through the list and look at which ones are in the right industry, seem like a semi decent business, and are in the right size range. On a typical day, I would probably go through a list of ~1000 companies and find maybe 50 that didn't get scrapped for whatever reason. You then email or call all of those. 95% won't respond because there is an intern reaching out. You get a response and set up a call. 95% of these calls are awful, either the people are dumb, the business has some massive red flag, or they have no interest in raising money. Maybe once a week you would find a company that is semi interesting, is open to raising money, and might be worth looking into. For me, that meant send it to my boss. Repeat this same process day in and day out.
I found this brutally boring, especially because I was so far removed from the investing process. Also, pretty much all the deals that my firm actually did were from some MD referral from a friend or something, so I felt like my efforts were a complete waste of time. Ended up in IB because I was not a huge fan of the sourcing model.
Bump. Would love for further discussion on the specifics of the sourcing model.
Also any chance we could have some more opinions regarding the value of sourcing model vs. traditional buyout shops? And perhaps the exits of sourcing model vs. traditional buyout shops (if there is in fact a difference).
Bump
Bump - really interested
^ does working in a sourcing role at the analyst level completely cut off chances of moving to later stage buyout/how do MBA chances look coming from places like GA/Insight/etc?
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