This article originally appeared in our market brief, Why a lack of private market data exposes investors to more risk, which explored how overlooking private market data can create blind spots when calculating valuations, sourcing deals and tracking market trends.
Deal sourcing is not just about a particular deal—it's about securing a competitive footing and contributing to the long-term success of a firm.Yet, maintaining a full pipeline of promising opportunities can be one of the most challenging aspects of the job. While the traditional approach to deal sourcing relies on a robust personal network (and a solid reputation, to boot), the vast world of digital has allowed firms to exercise a broader reach. Instead of tapping the same sources every time, an abundance of online market intelligence makes it possible to explore new sources and then target the best strategic fit.
How a lack of private market intel can leave promissing opportunities undetectedHowever, relying on news articles, word of mouth or ad-hoc research often results in undetected deals and unknown details. Moreover, within a fast-paced and hypercompetitive environment, it’s especially difficult to stay on top of all new entrants into the market. And new industries are cropping up at staggering rate—from virtual reality to autonomous vehicles—thanks to products (like software) that are cheaper to create and easier to scale.
As the private markets continue to evolve, sticking to an established network turns a blind eye to the opportunities beyond a traditional approach. Without a full vision of what’s happening, the ability to capitalize on potential deals will remain overlooked.
Furthermore, as multiples rise and competition heats up, good deals are getting hard to find. The firms that pull ahead will be those that systematically develop stronger ways to source great deals.
Sourcing the most promising opportunities with private market dataThe digital era has transformed how companies operate, from expedited lifecycles to entirely new business models. Mimicking those same operational principles, some GPs are working to digitize their own internal functions, including deal origination and contact management.
A large network will always be a valuable resource for investors, but manually keeping up with contacts wastes a ton of time. One of the first steps GPs have taken to digitize their internal processes has been leveraging technology to replace their outdated systems of relationship management.
Beyond making the traditional approach more efficient, firms have also worked to leverage data to develop new deals and investment theses. With access to information on hundreds of thousands of deals, GPs can analyze the factors that make an investment a strategic fit for them. Or, for one European firm cited in McKinsey’s 2019 Global Private Markets Review, deal analysis resulted in identifying which characteristics—or combination thereof—could indicate a success.
Private market data that provides insight into investor portfolios, not only fortifies traditional deal sources but exposes investors to alternative sources they may not be aware of otherwise. Similarly, introducing analytics to due diligence has the potential to make investment decision-making more accurate, more insightful and more efficient.
Further, firms can have greater conviction about a potential target’s true strengths and weaknesses with access to private company data—then make strategic decisions with all the facts.
Transaction and company data present an opportunity for the differentiated deal sourcing that’s needed in today’s landscape. Especially as the world becomes more digitized, analytics into the private markets and powerful due diligence tools give investors the competitive edge they need to stay ahead.
Plus, in the event of an inevitable economic downturn, the tools that match the sophistication and needs of LPs and GPs can better defend against a decline. Fueled by our research process, we’re always improving our data coverage and platform.