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.
Less analytical, worse finance foundations, can be a massive grind if you're cold calling all day
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.
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
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.
Precisely. Really depends on fund by fund, and what technology / processes they use to make it as focused / thematic as possible
Curious which firm is this ?
Can you PM me? Doing biz dev, VP level, curious to compare comp notes
Always love chatting with other BD pros - PM incoming!
Can i PM you?
I'm really curious about this because I've seen pure sourcing guys really sweat to keep their jobs, seems like you have to either have family connections or be in the execution team properly to build up a network?
How are you getting your sales niche?
Not sure I'm understanding your question. My role is banker coverage for my fund.
How does the magnitude of cash comp and carry compare with the investment team professionals at the same level?
Is the comp structured differently as well?
Far too variable to give a single answer since so many funds view their sourcing function/team differently. Like the deal side, comp is primarily a function of fund size / firm AUM, title, location. Carry is fairly standard these days at VP and above. Think I've posted this in another thread, but one data point I can offer up is a VP spot in the NY office of a top performing MM (~4bn AUM), 400-450k cash all-in + carry (if I had to guess, maybe 1mm DAW?). Not bad at all considering the increase in WLB vs. the deal side (though you will be on the road more), and probably hitting 600k cash after a promotion. And then if you're good, some new hot spinout fund or an old-school MM /UMM with no BD function will poach you to be Head of BD and you get the bag.
How does the magnitude of pay compared to your investment peers wrt carry and cash comp?
I'm not privy to the deal team's comp so unfortunately can't comment. I'm also underpaid so wouldn't be a helpful data point.
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.
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.
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.
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.
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.
Care to expand on the raising money part? I know this is a thread about BD but BD sometimes falls under the IR umbrella which also gets a ton of shit thrown onto it on WSO.
Sure - what do you think pays the bills?
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.
this guy has it. most bankers lack emotional intelligence. understanding other people is far far more complex a problem than solving for EBITDA. it's also because only once you get to MD is "sourcing" part of the deal. everyone below him/ her isn't concerned with that.
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.
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.
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
Can you pm me? Curious if I’m joining the firm you’re currently at.
you at Insight?
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.
Hey guys? Why is being a telemarketer not considered as good as being a consultant? Sounds awesome so needed some input.
No surprise the Director-IB is scared of sourcing lol
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.
You're doing great!
If you’re a director in IB with this level of insecurity something is seriously wrong with your life. You should go get that checked out instead of shitting on peoples jobs ….
Probably the reason he's had a lot of MS thrown at him over his time on WSO.
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?
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!
and execution is for autists who aren't capable of bringing in business and are usually quite socially awkward (getting into arguments with anonymous kids is really the entire point here) and do work some kid in an upper level college accounting course can do :)
Same reason people don't want to do sales. if you're good at it, you can do well, but most people do not want to make cold calls period, let alone as a major part of their job
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
Do you mind to elaborate more on this, in terms of how S&T people might be more suited to higher management roles?
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.
The hate on sourcing is dumb. Raising money and finding deals are the most lucrative jobs out there.
I think as a junior, executing is the best way you can spend your time. As a senior, the job is more sourcing anyway
Have you guys seen a HF or AM capital raising/relationship person transition to one of these seats?
People on this forum seem to always discuss a constant struggle between seeking an ideal work-life balance, finding purpose in this line of work, etc. Sourcing could be the perfect blend for folks (again, depending on the firm and how good you are): better hours, earning the same to potentially more pay than traditional execution roles, while still garnering all of the same types of industry knowledge and being more focused on the human relationships (as opposed to tied to spreadsheet wizardry).
Following
Sales is not cold calling. It is emotional intelligence. Most people don't have both people skills and technical skills. That's why each side throws shit at the other.
It takes two to tango. Banking usually shits on sales because execution is all they are paid for. Buyside is all about bringing in alpha and anyone can do execution so you need to understand other people.
It's just most people on this website aren't senior enough where sales comes into play and anyone good at sales isn't jerking themselves off to anonymous forums
Isn't one of the biggest negatives in regards to sourcing the comp & lack of career progression?
Granted, I haven't had a ton of exposure to direct sourcing roles but have heard anecdotally that it is easy to get pigeon held into being a sourcing only resource vs. being able to originate and execute.
Additionally, I think this is firm dependent but have heard that the sourcing team isn't viewed at the same level as the investing team members especially at the junior level - therefore comp lags.
Someone else said it well, at the junior level, this isn't really what folks shoot for necessarily. Important to build the execution and analytical skillset as a junior, then as you become more senior sourcing of both deals and funds becomes much more important, totally agree w point above about how hard it seems to be to raise above a certain level without that "salesman" skillset, ie bringing in business. Just won't really get an opportunity to showcase that at a senior level typically without the junior investment experience.
Why do associates at private equity firms hate sourcing? Because it's like trying to find a needle in a haystack, but the haystack is constantly moving and the needle is invisible.
It's also just fucking distracting.
Like I have cap tables to do, DD to process, portfolio Co's to monitor, Boards to attend, banker calls to participate in.
It's like Adam Smith and the division of labour isn't a thing in PE (and finance generally sometimes).
I actually think sourcing is one of the more interesting parts of my job and I am looking to build a career in sourcing. While I get the negatives in being sourcing only especially early on in the LMM if you are very good at driving top of funnel deal flow you become extremely valuable.
Rather than starting a new thread - I would love to get a discussion going on high volume sourcing:
This is great.
1) Internal CRM (Dynamics)
2) Mix of email + LinkedIn. We outsource calling
3) Unsure
4) I would love that
5) Thematic - but I think it's questionable in MM...
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