By Prescott Nasser
The glory days of Sand Hill Road show that relationships are at the heart of dealmaking. But the demands of deal flow nowadays mean PE firms focused on the middle market have to operate at a pace and scale that make a power lunch look quaint.
Going into a restaurant with an ex-Stanford buddy and coming out with a signed LOI is a lot less likely when they’re inundated with daily outreach and chatting with half a dozen other firms who specialize in their industry, are familiar with their company’s trajectory, and got there first.
As more and more firms build out state-of-the-art business development functions that bring scale, precision, expertise, and speed, those who are lagging operate at a decided disadvantage.
Everyone knows about the A+ targets. They’re closely watched, extremely competitive and will run highly moderated banker processes. If you want to complete, you need an edge that comes from getting in early, differentiating, and building a relationship.
And for all the rest, you need to find the winners everyone else is overlooking from among millions of possibilities. To cover that kind of universe means that you need data and tools that let you see all the possibilities, prioritize for best fit and potential, and uncover insight that lets you create breakthrough outreach.
Without the advantages of a well-built BD function, you’re likely to fall into a number of traps:
Missing the best opportunities. Pinpointing ideal targets starts with seeing all the possibilities. Limited visibility into industries makes it difficult for dealmakers to pursue specializations, refine thesis criteria, or identify proprietary opportunities.
Focusing on the wrong work. Building trust and rapport with top targets is the most valuable use of dealmakers’ time. But manually researching and vetting private companies leaves you little time for relationship building.
Struggling to stand out. Owners’ and operators’ email inboxes are flooded with cold outreach. Breaking through requires getting there early and having something timely and relevant to say. But maintaining this level of coverage and connection across targets is a major challenge. Likewise with conferences and in-person events. Travel and time away are major investments. Without intelligent planning and preparation, they often fail to deliver results.
Failing to inspire LP confidence. It’s possible to manually map markets, identify opportunities that match specific thesis criteria, and send personalized outreach emails. But not at the scale or speed modern dealmakers need to outpace the competition, systematically deploy capital, and secure LP confidence. As reported in the Bain Outlook report for 2025, many firms are struggling to secure new funds because they don’t have a successful track record to build on. Having a scalable BD engine offers an edge
A methodical and data-driven origination function takes commitment and focus. It won’t happen overnight; the key is to identify the marginal improvements that will make an outsized impact over time. It’s going to look different for every firm, but the key is establishing and iteratively improving structure in three areas:
Deals are sexy. The gritty work of building deal flow from the ground up is not. Busy teams often move sourcing to the bottom of their to-do lists, especially when they’re working live deals.
Whether it’s an entire team, an individual, or a portion of someone’s day, explicitly dedicating human resources to direct sourcing is the only way to ensure teams are consistently adding opportunities to the pipeline. VSS is just one example of a top private equity firm that has done this. “We’ve really dedicated ourselves to building out a business development function, so we now have three origination-focused individuals that are solely focused on finding new deal opportunities,” is how the head of business development, Jordan Margolin, describes it.
It takes the right kind of person to do it well. Recruiting for these specific skills is critical. Jordan goes on to say, “You want somebody who’s interpersonal and can communicate and really make a strong first impression for the organization,” he says. “I also think you need to be extremely organized. Another piece of the puzzle that sometimes gets overlooked is just having some discipline and resilience…You want somebody that's able to think on their feet, be nimble, and able to adapt given the room that they're in.”
PE firms expect the go-to-market teams at their portfolio companies to execute, measure and report on every activity that contributes to new business. It’s the only way to see opportunities for improvement, steer toward better outcomes, and effectively automate and scale operations. But very few firms pay attention to their own advice when it comes to business development.
As sourcing consultant and co-host of the Deal Sourcery podcast Dan Herr says during this Inside the Source interview, “In private equity and in sourcing, one of the biggest problems and biggest opportunities we have at the moment is that we're not actually leveraging most sales and marketing best practices. There's a budget and a target for each one of our sales team members at every portfolio company, and meanwhile, at our private equity firms, we’re okay with not having those things.”
Most firms have just a few stages in their deal pipeline, like “new company” and “outreaching.” These high-level classifications don’t have the nuance and specificity dealmakers need to accurately diagnose which parts of their sourcing process are working and where deals are getting stuck. “Does ‘outreaching’ mean I reached out to them once and they never responded?” asks Dan. “Does that mean they're part of a sequence that's on-going right now? Does that mean they've responded and said, ‘I never want to talk to you?’ Those are very different things.”
Organizations need to evolve from traditional investment pipeline stages and adopt a more rigorous, sales- and marketing-inspired version. Dan suggests that firms need “...at least 10, probably more, pipeline stages. Like, ‘New account has received zero outreach,’ ‘no reply,’ or ‘reply received.’ And even that could be bucketed in a couple different ways, like, ‘reply says never,’ ‘reply says not right now,’ ‘reply says let’s meet.’ There’s a lot of nuance…And that's a lot easier to solve than like, ‘Hey, we're getting a bunch of replies, but nobody wants to meet with us.’”
Just five years ago most firms didn’t even have a customer relationship management (CRM) platform — today, 70% of dealmakers rely on a CRM. And more and more of them have integrated their CRM with other systems to automate processes and enrich their data. Technology moves fast, so one way firms gain an edge is to operate from the front by experimenting with the latest.
AI is the easy and obvious example of the present. Machine learning has been fundamental to data collection, validation and organization for some time now. But LLMs like Chat GPT have opened a huge number of doors for improving and scaling business development activities from instantly summarizing and presenting vast amounts of data, to effortlessly creating personalized outreach.
Data resources, likewise, deserve continuous attention. If missing a deal is among the most costly mistakes you can make, then insuring against it by over-covering the investable landscape is your best hedge. AI is also proving to be extremely valuable when it comes to working across databases, removing many struggles firms have had when building aggregated data sets.
Ultimately you want to make the power of these systems available to everyone in the firm. “The fewer platforms you have to touch to get the information you need, the better,” says Director of Growth Capital for Growth Capital Partners (GCP), Michael Gray. “All of these tools should be integrated so that it’s easy to see everything that’s happening in one place.”
He recently shared the ideal future deal origination tech stack that GCP is working toward. It starts with using AI to analyze the firm’s data to identify the “unseen investment criteria” that make up their best targets. He would then use this information to find and rank opportunities across sourcing platforms and databases, narrow the list down, and automatically pass it to the firm’s CRM. “The next phase is to support the information gathering prior to approaching a business, and using Copilot-type technology to templatize and create bespoke, initial outbound emails or call scripts,” he shares. “In theory this will have turned what would have taken three, four, or five hours just to get one email out into a ten-minute task.”
Direct sourcing has changed. What was driven by strong networks, long hours, and persuasion now requires a system that scales your best human resources in order for them to take complete advantage of their best ideas and effort. There are so many possibilities right now, the only way to lose is standing still.
