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A guide to sourcing deals and investment opportunities

April 11, 2023

Whether you work for a venture capital firm, private equity group, or are looking into M&A deal sourcing, our guide to deal sourcing has you covered. We’ll detail PitchBook’s best practices for finding more promising investment and acquisition opportunities.

How incorporating data can assist traditional private equity deal sourcing

Dry powder levels are at an all-time high. The number of active PE firms are rising which complicates the process of private equity deal sourcing. As the capital markets continue to become more crowded and competitive, investors need to find new ways to streamline their deal sourcing strategy.

This increasing competition is leading many firms to look beyond the traditional, network-driven means of deal sourcing towards a more data-driven approach. That’s because timely, accurate financial data helps substantiate claims, focus research, and drive efficiency.

Our guide looks at how you can use market data to inform your investment strategy, find companies in your target sector that are primed for funding or acquisition and accurately gauge a company’s growth.


What our deal sourcing guide covers:

How to build and inform your investment strategy with private market intelligence, by:

  • Conducting detailed market analysis
  • Identifying macro trends
  • Researching exit activity of sponsor-backed companies
  • Comparing specific companies
  • Discovering and tracking emerging spaces

How to identify investment targets that align with your strategy, by:

  • Creating a target list
  • Searching for companies that are ready for funding or acquisition
  • Connecting with your targets

Frequently asked deal sourcing questions

How does private equity deal sourcing work?

In private equity deal sourcing, firms will rely on their team, contracted professionals, or deal sourcing platforms to scope out potential investments. From there, they will tap into their network or a third party service to conduct additional research and outreach that will set the stage for deal execution.

What is M&A deal sourcing?

M&A deal sourcing is the process by which companies or firms look for investment opportunities or rely on institutions like investment bankers to identify and highlight them.

How do investors source deals?

Investors traditionally source deals through referrals or the use of their networks, but have also started to integrate additional resources like data platforms and automated outreach.

What is deal execution?

Deal execution encompasses multiple processes between deal sourcing and finalizing a deal, such as building models, calculating exit potential, and ultimately, navigating the deal itself.

How long does a PE deal take?

Depending on the negotiation process, a PE deal can take between a few weeks to multiple months, affected by factors like valuations and paperwork.

What is due diligence private equity?

Due diligence in private equity is used to describe the process by which firms research investments and LPs research PE firms. The process of due diligence can check for factors like potential value, market position, and opportunities and risks.

What is dry powder in private equity?

Dry powder in private equity is the amount of unused liquid capital a firm has on hand. In more concrete terms, it is money that has been committed by LPs, but has yet to be allocated towards a specific investment.

How do I start deal sourcing?

Deal sourcing begins with research performed by an investor’s team or outside contractors, which aim to identify potential prospects. From there, they will must decide whether to proceed using traditional, network-based deal sourcing strategies or rely on more contemporary strategies based on online platforms.

What is deal structuring?

Deal structuring is the process by which two parties negotiate the type of M&A deal they will perform, as well as its finer details. This process can involve a variety of negotiation stages and paperwork, but ultimately result in either asset acquisition, a stock purchase, or a complete merger.

How do VC deals work?

In a venture capital deal, a VC firm will allocate funds they have raised from LPs to an emerging company in exchange for equity. Once the company is successful, the firm will then sell their share for a profit.

How do you source a startup VC?

Firms address the challenge of how to source a VC deal through two main vectors; their network and data platforms. The former is the long-established way of sourcing startups, while the latter is gaining traction and is more favorable to newer VC firms which may not have as many connections.

What does sourcing mean in private equity?

Private equity deal sourcing is the process by which PE firms become exposed to new investment opportunities, either through market research and outreach or platform-based solutions.

How do VCs perform research?

VC research, also referred to as due diligence, is performed to gauge the viability of a potential investment. Given the considerable amount of equity most VC deals entail, along with the fact that VC firms invest in much more nascent companies than their private equity counterparts, it is crucial that they thoroughly consider every aspect of their prospective company. Due diligence will often involve research on a company’s founders, industry, the overall state of the market and several other factors.

What is PitchBook's  VC Exit Predictor?

PitchBook’s VC Exit Predictor is a machine learning algorithm that predicts a venture-backed company’s likelihood of exiting with 74% accuracy. It uses classification models to predict the probability of acquisition, going public, or experiencing a traditional exit. The Opportunity Score uses these predictions and historical average returns to calculate an estimated IRR, shown as a percentile. To qualify for the VC Exit Predictor, a company must have received at least two rounds of venture financing deals, with at least one deal occurring within the last six years. The algorithm uses data points such as deal activity, active investors, company performance indicators, and market positioning to generate exit predictions.

More about the PitchBook deal sourcing guide:

Why trust what we have to say?

We’ve been tracking the private markets for a decade and we currently have investment data on more than 3 million private companies. We offer up-to-date and accurate data on their pre- and post-money valuations, industry, total capital raised, revenue figures, and other non-financial metrics that help you quickly build a list of promising opportunities and maintain your investment pipeline.

Layered on top of our dataset is an advanced search tool that allows users to search and filter companies in order to find investment options that fit their strategy. We designed it so deal origination would be easier for investment professionals across the board. In fact, many of our clients have found success by proactively sourcing investments with PitchBook.

Why should market analysis help inform a future investment?

Insight into market trends is key to making a good investment decision. Private market intelligence is the best way to understand which sectors are growing and how much capital is being infused into the market. Knowing where companies sit in the broader market context is also helpful when allocating capital. With a summary of the landscape, you are better enabled to track trends at a glance, anticipate shifts, and even see where your competition is moving.

How can I understand a newer market that has less research available?

New trends within the VC landscape pop up all the time, and identifying those spaces in their nascency—before competitors key in—can be a challenge. Our guide goes into more detail on how to source VC deals, but we recommend diving into PitchBook’s Emerging Spaces. We are tracking more than 125 spaces that are on the rise, but are not yet established enough to be considered verticals in the market. For example, clean meat, carbon capture, air taxis, nanomedicine, and medical robots are emerging spaces that we cover. Discovering niche corners of the markets and potential investment opportunities should be easier, and that’s exactly why we started tracking these areas.

Will the guide help me create a list of potential investment opportunities?

Yes. Learning how to create a target list is a large portion of our guide. We’ll help you quickly create a list of promising investment or acquisition targets based on the attributes that matter most to you or your client—including industry, location, pre- and post-money valuations, total capital raised, revenue figures, and more. This could include identifying all the mobility tech companies in California with Series B funding, for example, or listing all the PE-backed fintech companies in Europe that are nearing the end of their holding period.

How can I tell if a company is in need of funding?

Our guide will go into detail on searching for companies that are ready for funding or acquisition. There are several key figures such as the last funding date, employee count, and more that we look to as early signals that a company is likely to need an infusion of capital or debt. In the case of M&A deal sourcing, you can leverage insight into VC or PE portfolios to see when companies are nearing the end of their holding period.

How do I figure out who to reach out to about an investment?

Once you’ve established your list of promising investment options, the best next step is reaching out to each organization as quickly as possible. Our company profiles include management teams and executives because nobody likes to waste their time reaching out to the wrong person. Plus, competing firms may be eyeing the same investment, so getting an edge on contact information may be the advantage that you need.

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