This series breaks down the different combinations of sources, solutions, and data signals top dealmakers use to identify, engage, and win the right opportunities.
This formula has all the ingredients you need to learn how to originate deals with high-growth private companies. Read on for a step-by-step breakdown of how to identify and build lists of fast-growing targets that meet your organization’s unique investment criteria.
There are more than 25 million private companies in the US — and fewer than 4,000 public ones. In addition, just 13% of companies with revenue over $100 million are public. This means private businesses account for the vast majority of desirable investment opportunities.
While the internet is flush with data about public companies, from their pricing structures to their profit margins, finding complete, accurate information about private organizations is much harder. This is especially true if they are bootstrapped, or founder-owned.
Yet insight into a company’s growth trajectory is essential for dealmakers to determine whether a business is worth their time and investment. Waiting for private companies to come forward and announce their desire to transact kills firms’ proprietary edge and adds an additional layer of competition.
That’s why investors must find ways to “read between the lines” to identify and build lists of relevant, high-growth private company targets before anybody else.
For the purposes of this post, let’s imagine we’re a private equity firm looking to partner with high-growth companies that are:
We will illustrate each of the following steps with a screenshot from the Sourcescrub platform that follows this scenario.
In Sourcescrub or your deal sourcing platform of choice, start by identifying companies in your desired geography and sector.
Select privately-owned and/or bootstrapped businesses only, depending on your firm’s preference. Remember that in our example we are looking for private, founder-owned companies.
Choose a founding year range that fits within your organization’s investment criteria. For the purposes of this exercise, we are searching for businesses founded within the last two to ten years. This will help weed out software companies that may still be in stealth or initial product development mode, as well as businesses whose growth rates have slowed due to maturity.
If you have a particular revenue range in mind, apply this filter next. Top deal sourcing platforms use AI-powered models and algorithms to provide highly accurate estimated revenue ranges for private and bootstrapped companies. They also provide employee count filters for firms that prefer to use this number to estimate company revenue instead, which is what we are using in the example below.
Hiring is usually the leading indicator of how quickly a company is growing. Look at the headcount growth for each of the remaining companies on your list for the last three, six, nine, and twelve months. Then export this data to your CRM (or a spreadsheet if your deal sourcing platform can’t integrate directly with your CRM) to analyze the changes in these numbers over time. Eliminate any companies showing a flatline or downward trend. Temporarily eliminate yet continue to monitor any companies exhibiting a single, sudden spike over recent months.
Pro Tip! Continue to pass three-month growth rates to your CRM for all companies on your list to monitor them over time and get a longer-term view. This information may be useful for spotting sudden upticks before other firms, debt financing opportunities, and more.
Begin factoring in other important growth signals provided by industry-leading deal sourcing platforms like Sourcescrub. Recent increases in website traffic and media coverage indicate whether companies are gaining traction and getting recognized by industry insiders and potential customers. Trade show attendance is another key signal, as it not only shows go-to-market momentum, but also that the business has the budget to travel to, attend, and possibly exhibit at these conferences.
Since every organization and industry is different, it’s up to you to determine which of these signals are the most accurate growth indicators and therefore carry the most weight. Conference attendance is a particularly strong signal in our example sector, AI Software.
Work with your data or operations team to create a custom model that can analyze and score companies based on the signals chosen and weights assigned to them in Steps 1-6 — or choose a deal sourcing platform that can do it for you. Export your list to your CRM or as a CSV and sort it by highest to lowest score, and prioritize the highest scoring targets. Periodically reassess the remaining businesses and add additional high-growth private companies over time using the scoring model you’ve created.
Now that you’ve identified the high-growth private companies you’d like to target, it’s time to start building relationships with them. See how Sourcescrub can help you keep tabs on these top opportunities and reach out to them with the right messages at the right times — all while saving your team time. Watch this demo all about Sourcescrub’s automation capabilities now.
