Initial Deal Sourcing in Private Equity
Could somebody walk me through their initial deal sourcing thought process (pre-CIM)? I'm trying to get a better understanding of how to decide which investments to proceed looking into, and which ones to pass on.
Like what specific metrics and characteristics would you personally look for in a teaser or just a private company you came across by yourself? I'm finding it difficult to determine if an investment is worth pursuing with such limited information.
You should have been given a criteria/thesis/framework and you evaluate targets based off that.
We built a program that pulls data from a few different sources (ie looking @ their tech stack in ecomm as factors) and flags companies as potential targets then automatically email them and leave the dialogue options very open as we do minority or majority equity deals. Has worked well so far but it's also focused on smaller companies. Our automations also only work because of the types of companies we focus on ymmv.
Thanks! I'm actually a student trying to learn the business model of PE firms that do deal-sourcing in house with the aid of interns.
In terms of trying to source deals on your own, how do you find semi-accurate estimates of the company's revenue and EBITDA figures? And how do you determine the size of the specific market that the company is operating in?
Depends on what assets you're looking at...everyone has industry specific "tricks" and resources.
I focus on DNVBs and eCommerce so we look @ their tech stack automatically pulling data from BuiltWith's API and then have a few other tricks we use. Generally easy to get a fairly accurate revenue range this way. I have a few people I call at payment processing companies to get transaction volume and revenue processed by them too.
Ebitda is another matter and you can't really estimate it. You can figure out rough GM if you know an industry and maybe work out what it should be but you'll almost always be off.
Above only applies to LMM.
Also our deal flow/sourcing techniques are considered advanced going off the reactions I generally get from people (lol), likely due to deep tech and digital marketing experience we have.
The usual PE/VC thing is networking and a fuck ton of smile & dial.
You dirty dawg. Nice trick - how'd you manage to develop those relationships?
I'm really nice.
I can officially confirm dirty talking the customer support reps is not what you meant by being really nice. Or maybe my ice breaker was off...
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