Why The Hate on Sourcing?

Still an undergrad, but I've been hearing a lot of people say that a sourcing role is either undesirable, poor preparation for an investing career, or both. It sounds way more fun to me than making financial models, but I'd like to hear people's thoughts on why sourcing is perhaps overrated or not enjoyable. I'd also be happy to hear what people enjoy about it.
 

Edit: I should have clarified that I was talking about sourcing in the sense of growth/VC/PE. Got a lot of responses about biz dev sourcing (still sounds cool!), but hopefully that makes my question a little more clear.

Comments (46)

13d
Green_Bananas, what's your opinion? Comment below:

People on here tend to be quant/math oriented and want to be investors so they look down on jobs that are based on soft skills. Sourcing deals can be a very rewarding experience.

It's just an anecdote that I heard through a friend about someone else I went to school with, but I heard he got into business development and killed it, making ~$800k in one year in his late twenties. Obviously comp will depend on the firm's commission structure and how many deals you can bring in.

"I'm going to make him an offer he can't refuse."

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13d
user121, what's your opinion? Comment below:

Echoing comments above. Sourcing from what I know generally can be like a sales job. Not sure how many people here or on Wall Street in general, especially among the leaders/big names, were marketing/sales majors in college. I think the top marketing majors generally go to marketing/advertising firms or whatever

  • Associate 3 in PE - LBOs
13d

Business development (sourcing) guy here.  It's just not as sexy on WSO because you're not the one executing the deal, but it can be a great career if it's your thing.  Chiller lifestyle (no sprints or fire drills) and comp can be decent as you advance.  I'm testing the market now and was just quoted 400-450k cash + carry for VP at a solid MM fund.

One caveat though is that there is huge variability in how sourcing is managed from firm to firm.   You could be stuck finding contact information and cold-calling all day or you could be working on thesis generation with the investment teams and going to conferences, having bankers take you out to ballgames and dinners, etc.   

12d
BooBooHoo, what's your opinion? Comment below:

Precisely. Really depends on fund by fund, and what technology / processes they use to make it as focused / thematic as possible

Most Helpful
  • Associate 1 in PE - LBOs
13d

Seriously the two things that will propel your career in private equity are the ability to raise money and the ability to source off-market deal flow. Without these two you will never rise above VP/Principal in the vast majority of funds. Anyone who knocks sourcing doesn't really understand how the industry makes money.

  • Associate 1 in IB - Cov
12d

OP, this is THE answer you are looking for.

Plenty of delusional bankers and PE investment professionals think execution is the gold. However, without people sourcing good deals, what do you execute? 

In my bank, coverage group MDs get paid the most since they pull in deals. 

12d
jmwiii, what's your opinion? Comment below:

Great comment - I was hoping for a conversation particularly related to Private Equity/Venture/Growth. This is how I'm currently thinking about it, but I'd like to hear the counterpoint to this argument.

12d
BooBooHoo, what's your opinion? Comment below:

I agree with your points although question what you mean by "off market" deal flow? 

Just because it's a bit of a nebulous term. Most assets tend to have a process of sorts although completely understand getting it to be bilateral or building the relationship in advance of the process. 

  • Associate 1 in PE - LBOs
12d

Sure, so just for context I'm an Execution Associate at a UMM PE shop focused on NAM old economy businesses.

So what I mean by "off market" is genuinely off market. Not at all true that every process is banked. When I was a banker I worked on a €2bn deal where the sellside didn't even have an advisor let alone a process. Look at some of the stuff Allen and Co or BDT do, I doubt they run many or even any processes. There are off-market businesses out there, just got to work really hard to find them.

The Execution Principal at my fund who probably will be paid the best at year end works half the hours of the guy who works the hardest, but what he does do is constantly meet bankers/entrepreneurs (the dedicated sourcing guys hate him) and try and find out what things are actionable but aren't going to be auctions for reasons related to speed/certainty or reputation. Even when we do end up having to jump in a process, we will normally know the management on the other side well enough that we can bid slightly below the winner's value and get the asset anyway. To do this successfully you probably have to look at a lot of out of favour sectors.

13d
CharlesCheese, what's your opinion? Comment below:

Good answers already.  Sourcing gets a bad wrap because people think it's just cold calling all day...  While it can be that to an extent, you also have to consider the nature of what you're "selling".  You aren't calling people up asking them if they want to buy a mutual fund.  You're asking them to make what is likely their biggest professional decision and, in some cases, to sell their life's work.  As such, the lifecycle of the sale is usually years, which means you're really in the business of "hanging around the hoop".  It also means that you get to have more substantive conversations about the performance of their business, the challenges, expectations, etc.  It can be a bit more intellectually stimulating than it seems at the outset.

  • Analyst 2 in AM - Equities
12d

Great thread so far. Nothing to offer but hope more folks can give their 2 cents. Personally think this is a very interesting career path.

12d
whatsapitchbook, what's your opinion? Comment below:

Everyone else provided great coverage/commentary - will add that sourcing can be very lucrative early on in your career - know wholesalers making 500K+ selling mutual funds <30, know commercial bankers making 350K+ wining and dining clients, know that the best bankers are salespeople, not execution people.

STONKS
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  • Analyst 1 in PE - Growth
12d

I'm at a large tech growth growth equity firm with a focus on sourcing (in addition to execution) - a couple points that I think are often overlooked:

1. In all flavors of MM PE / growth / venture, sourcing is increasingly a differentiator... your goal is to get to the opportunity first, build the best relationship, and have an angle to pay the best/highest price possible. Yes both sourcing and execution (and portfolio support chops) are necessary to be a great investor, but first and foremost if you can't originate past the VP/Principal level, your value-add (and chances at sticking around) diminishes greatly

2. Low IQ sourcing is cold calling down a list of random software businesses... high IQ sourcing is building real thematic knowledge around areas of mutual interest (between you & your firm) and being thoughtful in getting in front of what you believe are the highest-quality businesses. Yes, volume matters and you will have to endure the grind to find diamonds in the rough, but done well a great sourcing Analyst/Associate should be domain experts on a few interesting software/service/etc verticals and not glorified BDRs...

3. Commercial instincts matter just as much as deal execution... done well, a junior sourcing role should expose you to thinking about a wide range of situations involving valuation, use of leverage, management team dynamics, co-investor relationships, etc. while assessing fundamental business quality. Yes, you will get less reps processing CIMs or getting in the weeds of an LBO, but way more reps thinking through the most important business & people challenges in making a deal happen 

The way I see it... I spend 70% of my day on the phone with CEOs speaking about (usually) fairly interesting software businesses, and the remainder of the time finding these businesses / evaluating them. If you truly have a curiosity for business, it's hard to hate the job + you tend to work with folks who are typically more social & well-balanced vs. hardos you'll find in other flavors of investing

  • Incoming Analyst in IB - Gen
12d

As many comments have said, it can depend firm to firm. I have worked in a sourcing role in the past for a LMM GE fund. My role was primarily focused on research and thesis development. I also spent a lot of time doing cold outreach. This was not exactly what I was looking for (I prefer more analytical/quantitative assignments) and I left the firm after about a year. At the end of the day, I think that you can learn some valuable skills when it comes to research and understanding what makes a company more desirable, but its a grind and extremely repetitive. I know that is can also be lucrative and the hours are certainly more favorable.

12d
Smoke Frog, what's your opinion? Comment below:

IB has a ton of sales too lol. Sourcing is just sales for losers who can't do anything else at all but spin a Rolodex. Nice try though analyst.

5d
Smoke Frog, what's your opinion? Comment below:

Calling out people as losers doesn't automatically make someone insecure, just being honest about the job. Lots of sales and entertaining and stuff that doesn't require brains. It's fine if it's part of your job, but when it's your whole job it's typically for good time Charlie's.

You know I'm right, so why disagree just because I was brusque about it.

Just cause I've had some success in banking I can't call out people or I have to be nice about it?

Funniest
4d
CharlesCheese, what's your opinion? Comment below:

A lot of mental gymnastics to justify being a 40 year old who spends their time being a jerk to 20 year olds on an online forum.  Not to mention that if you're constantly having to follow up your original point with a diatribe about how you're a brusque truth-teller and everyone who disagrees with you is a pussy, it's probably an indication that you're not an effective communicator.  

No matter though, you aren't insecure, you're righteous! and rich! the truth telling bad boy! educating the masses! telling it like it is! very cool!

  • Associate 2 in VC
12d

This is my role and it's way less of a grind in terms of hours and can lead to a lot more total comp than the "investment/banking" roles. Both are great but at the end of the day the rainmakers and people bringing in money are gonna be compensated the most but it's a much more reward vs risk.

It's good to be able to do both but take a look at who's actually running a lot of asset mgmt firms, pe/vc shops and investment banks, many of them were in S&T

  • Associate 2 in VC
1m

I'm not gonna say s&t vs banking is better or worse for upper management or who should be in charge I have no real basis to say that. However, it looks it's easier for a younger person to make a name when they have their own p&l or quota that can't be attributed to a team effort or a set path of promotions (also very different now but thinking back to the older days too with s&t). But sales specifically and certain traders roles are heavily relationship based…and it's not uncommon for these to be relationship based roles from Junior up to the highest level for the most part.

In banking from what I can tell the best people who rise to the top end up becoming salesmen themselves, an MD when you think about it, they have fantastic relationships and the role is about bringing in business if they can't they're gone.

I could be completely wrong but I always believed the s&t people at the top made it there cause it was required to have many internal and external relationships to succeed but also the ability to show direct value add in terms of sales or p&l from a younger role. Someone could say I'm way off and it's not clear cut and dry for these big companies but it makes sense that having both the talent and much more people to be connected with helps you get into the exclusive clubs and jump around to the top.

  • Analyst 2 in IB - Cov
11d

I think as a junior, executing is the best way you can spend your time. As a senior, the job is more sourcing anyway 

11d
Brio, what's your opinion? Comment below:

Have you guys seen a HF or AM capital raising/relationship person transition to one of these seats?

7d
funds23, what's your opinion? Comment below:

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