Private equity deal flow best practices

Private equity has recovered from a turbulent last few years faster than almost any asset class or industry. Dry powder proliferated to an all-time high of $920 billion in the U.S. starting in late 2020—and experts say that 2021 was the industry’s most prolific year ever for PE deal flow. 

With the fast recovery, record-high deal values, and a spike in acquisitions, deal teams may be tempted to rest on their laurels when it comes to deal flow for private equity. But leading PE firms know that continually building a high-quality deal flow pipeline is how you stay ahead in this competitive marketplace.

Private equity deals are complex, long-term undertakings, and it’s important that every step in the deal process—from deal sourcing to due diligence to exit—is done thoughtfully and efficiently. In this article, you’ll learn where the best deal flow comes from, best practices for keeping quality deals coming, and how leading private equity firms are getting ahead.

What is private equity deal flow?

PE deal flow is the quantity and quality of investment opportunities and the process by which firms source, evaluate, and win investment deals. Good deal flow is a key indicator of a successful fund, and it’s how PE firms develop and maintain their pipelines.

Successful firms manage a large number of deals over long periods of time, which requires dedicated time for relationship building and connecting with their networks. Yet when deal origination efforts stall, it can have long-term ramifications. So how should a modern private equity firm build a quality deal flow pipeline while keeping relationship-building at the forefront of their strategy?

{{report-202311="/rt-components"}}

Building a relationship-driven deal flow pipeline

In fast-paced, high-stakes capital markets dealmaking—like venture capitalists seeking the next great startup, investment banking firms looking for high-profit M&A deals, and private equity firms navigating every stage of business development (from deal sourcing to private equity due diligence all the way to a closed deal) with established private companies—a lot of attention is placed on deal sourcing. Leading firms, however, know that better deal sourcing is a result of better relationships. After all, people do business with people they know, like, and trust.

Most high-quality deals will come from warm connections in your network, not from cold outreach. If your network is strong, and your relationships are active and well maintained, you’ll be lightyears ahead of competing firms.

Successful dealmakers heavily weight their time toward relationship-building and deepening their connections. They stay top of mind and grow their sphere of influence by making the effort to reach out, connect, and provide value to the people in their networks.

Network like an industry leader

Networking is the best way to increase PE deal flow—when it’s done well. Leading private equity partners, principals, and VPs take a long-term view of relationship management. They make an effort to give as much as they get and generously connect people in their networks, share insights, and look for ways to help others.

Private equity deal flow best practices

Let’s explore three key ways to improve PE deal flow in today’s fast-paced marketplace.

Align on your investment thesis and strategy

The first step to increasing quality deal flow is to focus on keeping your team aligned with your investment strategy. 

What is your fund’s investment thesis? What kind of deals is your firm looking to invest in? Consider parameters like early stage or late stage, geography, vertical, or cash flow. Also consider the expertise your firm and LPs bring to the table, and what kinds of companies you could help most effectively in value creation.

What constraints are you working within? Is your firm staying away from certain segments or sectors? 

Assess your existing network for untapped opportunities

Growing your network is certainly important—but you likely have some great opportunities in the network you already have. 

Revisit past referrals from your current portfolio companies

Perhaps an opportunity you passed on a year ago would be perfect for your firm today. In order to keep all of their relevant records up to date, leading PE firms are turning to intelligent CRM platforms that can help you capture activity as it happens and surface it quickly later on.

Evaluate your network for new referrals

What existing relationships do you have that might give you inroads to new opportunities? Consider:

• Service providers including lawyers, insurance brokers, accountants, consultants
• Other investors at private equity funds, venture capital firms, and investment banks
• Domain experts
• Transaction intermediaries including M&A advisors, investment bankers, and business brokers

When these relationships are centralized in a single source of truth, you can more easily understand who knows who. If you’re using a CRM with relationship intelligence, you can also quantify these connections with relationship scoring technology that goes beyond who knows who and takes into account how well they know each other.

{{report-202311="/rt-components"}}

Nurture your most important relationships

Healthy human relationships go deeper than surface level. While it can be tempting to speed up the process of relationship maintenance and leaping to tactical, deal-related questions, this does little to build true connections. 

• Actively connect people in and across your network with other people they would find value in knowing.
• Send them content that might interest them, including news clips and new research.
• Share their content across your network and marketing channels. And let them know how their content is helping you personally.
• Check in on a personal level. Ask about their family or their pet hobby. Reach out when you see a big weather event is hitting their area.
• If you’re attending an event in their area, reach out and see if they can meet up for dinner. Or better yet, offer them a ticket to go to the event with you if it’s appropriate.

Most importantly, make relationship building and maintenance a priority on your weekly schedule. Set time aside to meaningfully connect with a number of people in your network every week, and use tools with built-in reminder systems so you never let a contact slip away.

How are leading PE firms updating the way they manage their deal flow?

Some PE firms are sticking with traditional private equity dealmaking processes, but some private equity firms are keeping up with rapid changes in the market, and adopting new investment processes and technologies to stay ahead. 

Here are the two key things cutting-edge firms are doing differently. 

Automating data capture

This is the secret to spending less time on manual data entry and more time building quality relationships that ultimately improve deal flow: Automated data capture.

Private equity firms manage a lot of data:

• Contact information
• Meetings and meeting notes
• Phone calls
• Emails
• Company moves
• Role changes
• Industry notes

By automating data entry, you and your team are freed from hundreds of hours of manual effort—and that time can be redirected to networking, connecting, and building relationships.

Few CRM solutions on the market offer true automation for manual data entry processes. Affinity's relationship intelligence CRM, however, automates data capture seamlessly by pre-populating CRM data fields from sources including emails, calendar events, and external data partners like Pitchbook and Crunchbase.

Affinity ensures all contact information and activity is accurately captured in real-time, so you don’t have to take time away from your network to keep your CRM up to date.

{{CRM-guide-202402="/rt-components"}}

Creating a single source of truth

If everyone on your deal team is using a different system for recording their contact and deal information, there will be critical gaps in information and communication, and your firm will lose out on potential investments because of it. 

Affinity solves this problem and creates more efficient deal flow processes by consolidating deal and relationship data in a centralized system that is intuitive and easy to use. Your deal flow is the collective information stored across your team’s opportunities, communications, and contact data, and placing that in a centralized location, your firm can move with speed and confidence. 

What’s next for your private equity deal flow?

Increasing your deal flow and keeping your pipeline full of high-quality opportunities depends more than anything on the quality of your network. Be sure your systems and processes facilitate relationship-building above all else—and that includes your CRM software. 

In addition to automating data capture and creating a single source of truth for your firm, Affinity gives you end-to-end visibility to your historical and active deal pipeline, so you can see the full picture of every deal and every relationship.

With Affinity, relationship-driven dealmakers save hundreds of hours per year otherwise spent doing manual data entry in traditional CRM tools like Salesforce and Pipedrive. Affinity’s simplicity and user-oriented interface encourages fast, frictionless adoption across your firm, and gives your deal team the advantage of advanced real-time metrics and business intelligence.

Stay one step ahead of your competitors while optimizing and accelerating private equity deal flow. Talk to an Affinity team member to find out how you can achieve all of these benefits today.

{{report-202311="/rt-components"}}