Private equity deal sourcing strategies get discussed as if a fund can run all of them and the question is emphasis. For most funds that is false: each channel consumes a different scarce resource and a small fund has enough of exactly one. Choosing which, deliberately, and then sustaining it long enough to work, is the whole strategy. This page sets out the four and which fits which size of fund.
Intermediated: the base load, and no differentiation
Processes run by bankers and brokers. Everybody sees them, the terms are competitive by design and the win goes to speed and certainty rather than to insight. It is a reasonable base load and a poor strategy: a fund whose entire flow is intermediated is competing on price and process alone.
Outbound: cheap to start, and it consumes the scarcest resource
Associates contacting owners directly. It converts at a low rate and eats exactly the resource a small fund has least of. Funds that do it well treat it as a multi-year campaign in one narrow sector rather than a broad sweep, and they measure it, which almost nobody does.
Sector reputation: slow, compounding, and the one small funds can build
Being the fund that owners in one niche have heard of. It takes about three years of published work and visible results, and it produces the best-qualified opportunities of any channel. It is also the only one where being small is not a disadvantage, which is why it is usually the right answer below a few hundred million.
Operator networks: durable and expensive
Executives who bring opportunities and can run them, which means paying people before there is a deal. Measured over a decade it is probably the strongest channel and over a single fund cycle it is hard to justify, which is why it is rare below a certain size.
Questions people ask about private equity deal sourcing strategies
Which strategy fits a small fund?
Sector reputation. It is the only channel where being small is not a disadvantage, and it produces the best-qualified opportunities.
How long before a strategy works?
About three years for sector reputation, which is why most programmes are abandoned in year two, shortly before they start working.
Can a fund run several at once?
It can run one well. Each consumes a different scarce resource, and a small fund has enough of exactly one.