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Five portfolio management tips from venture capital veterans

Venture capital is often referred to as an apprenticeship business because so much important learning comes from day-to-day experiences. Yet, as an article published by the Business Development Bank of Canada (BDC) explains, you can shortcut the learning process by learning from experts: “Your learning curve can be shorter—and your results better—if you learn from pros who’ve already mastered key … ... read more

Deal Flow Private Equity

How Investment Firms Can Access Proprietary Deal Flow With Affinity's Relationship Intelligence

By Rebecca Hinds

Private equity is red-hot right now. In 2018, over 5,000 buyouts were closed, representing an 11% growth rate over 2017 levels, and deal volume surpassed $800 billion, representing a 32% increase over 2017 levels. Yet at the same time, private equity has become increasingly competitive and proprietary deal flow increasingly rare. This new landscape is mandating that private equity firms become more strategic and creative in how they access and set the seeds for proprietary deal flow. Here are three strategies to optimize private equity proprietary deal flow using Affinity

Build a powerful brand 

One of the most powerful ways to access proprietary deal flow is to build a powerful brand. According to one study, nearly 95% of private equity firms say that their “profile” or brand strength is critical to sourcing deals. While there are numerous outlets to improve brand image, few strategies rival the effectiveness of networking and relationships. Russ Alan Prince, president of R.A. Prince & Associates, Inc and an authority figure on the private wealth industry explains, “Very often, the firm’s “brand” is built up over years of networking and successes.”  

Using Affinity, private equity firms can optimize their networking powers. They can seamlessly track who team members have communicated with, what files have been exchanged, and who facilitated the introduction. Thanks to enriched Crunchbase contact data— including company stage, last funding date, and lead investors—firms can gain unprecedented context into relationships. And with smart reminders that alert them when a relationship is at risk or when an email hasn’t received a response, private equity firms are able to forge strong relationships and stay top-of-mind with key relationships.

Leverage referrals 

To optimize proprietary deal flow, private equity firms need to double down on referrals. The key is to cast a wide net. The aforementioned study also revealed that more than 90% of private equity firms say that meaningful introductions are facilitated via existing portfolio companies. Yet there are many more lucrative sources. Approximately 90% of firms also said that referrals from investment bankers as well as conferences and other marketing activities are important deal flow generators. 

With Affinity, private equity firms are able to intelligently scan their network for lucrative referrals. Affinity functions as a firm’s dynamic relationship Rolodex. Firms are able to ask intelligent questions on the platform such as “Which experts do my team members know in the biotech sector?” and “Which public company retail CEOs have my team been in contact with over the last year?" that can shed light on lucrative referral opportunity. 

Always be searching 

When it comes to accessing proprietary deal flow, a proactive approach is a recipe for success. As Hugh MacArthur, Graham Elton, Daniel Haas, and Suvir Varma of Bain & Company's Private Equity practice explain, “Rather than waiting for the offering book to arrive and then reacting at the same time as the rest of the crowd, today’s marketplace requires PE firms to put their best foot forward, actively looking to enhance the quantity and quality of deals entering their funnel.” 

Using Affinity Alliances, private equity firms are able to exponentially enhance the quality of their network by tapping into their extended network to gain critical introductions to proprietary deal flow. They can immediately understand how well they know contacts at different companies outside their immediate network and gain powerful inroads. When it comes to surfacing proprietary deal flow, this can be a game-changer. 

As the aforementioned members of Bain & Company’s Private Equity practice have identified, today’s private equity landscape can be likened to the gold rush. “Investors have to get smarter about where and how to dig.” Adding credence to these sentiments, a 2016 study by data research firm Preqin found that 36% of private equity firms said that it’s more challenging to find attractive investment opportunities compared with prior years. A mere 2% of firms said it’s easier. Traditional more reactive approaches are no longer sufficient. Affinity can be a transformative force in helping private equity firms stay in front of the competition and capitalize on the lucrative market. 

Deal Flow Private Equity