For private equity firms and investment banks, generating proprietary deal flow is crucial to success. Proprietary deal flow, or deals that are sourced directly rather than through intermediaries, can provide access to high-quality investment opportunities and give firms a competitive edge. In this article, we will discuss how AI can help generate proprietary deal flow and introduce Inven, an AI-powered tool that can help firms do just that.
What is Proprietary Deal Flow?
Proprietary deal flow refers to deals that are sourced directly by private equity firms or investment banks, rather than through brokers or other intermediaries. On average 90% of M&A transactions happen off-market without a proper bidding process. By sourcing deals directly, firms can gain access to high-quality investment opportunities that are not available to the wider market. Proprietary deal flow also allows firms to build relationships with company founders and management teams, which can lead to future deals and partnerships.
Pros and Cons of Proprietary Deals
There are of course various pros and cons on proprietary deal flow. Most of the cons are related to the fact that getting proprietary deals is often time consuming. The bright side is that if successful, proprietary deal sourcing often gives access to truly high-quality investment opportunities that other companies and investors are missing out on.
Pros:
- Access to High-Quality Investment Opportunities: Proprietary deals often provide access to high-quality investment opportunities that are not available to the wider market. By sourcing deals directly, investment firms can gain an edge over their competitors and potentially earn higher returns for their investors.
- Lower Price Point: One of the key advantages of proprietary deal flow is the potential for a lower price point. As the deal is sourced off-market, there is often no bidding process, which can save significant time and resources. In addition, without the pressure of competing bids, investment firms may be able to negotiate more favorable terms or purchase assets at a lower price than would be possible in a public auction.
- More Efficient Purchase Process: Proprietary deal flow can also streamline the purchase process, as it eliminates the need for a lengthy bidding process and potentially reducing transaction costs. Investment firms can move quickly to evaluate opportunities and negotiate terms, without the constraints of a formal auction process.
Cons:
- Time-consuming: Sourcing proprietary deals can be a time-consuming process that requires a lot of resources. Investment firms and private equity companies must build relationships with companies, conduct thorough due diligence, and negotiate terms, all of which can be a lengthy process.
- Uncertainty: Proprietary deals are inherently more uncertain than traditional deal sourcing methods. Without a formal bidding process, it makes it more uncertain whether the deal will go through as the other party might withdraw.
- Requires a well-thought-out strategy and the right tools: Proprietary deal flow requires a well-thought-out strategy to be successful. Investment firms need to have a clear understanding of their investment criteria and target market, as well as the right tools to find the right targets. Fortunately, the latest developments in AI has brought new softwares like Inven for proprietary deal sourcing.
Proprietary Deal Sourcing: Strategies for Building a Strong Deal Pipeline
Securing high-potential, off-market deals is critical to generating exceptional returns. Productive proprietary deal sourcing strategy gives a significant competitive edge.
Traditional Methods for Generating Proprietary Deal Flow
Traditionally, private equity firms and investment banks have relied on networking, referrals, and industry expertise to generate proprietary deal flow. While these methods can be effective, they are also time-consuming and can be limited by a firm's existing network and expertise. Additionally, traditional methods can lead to missed opportunities if the right connections are not in place.
Beyond Manual Sourcing: How AI Generates High-Quality Deal Flow
Artificial intelligence significantly improves the efficiency of deal sourcing. AI-based tools can help private equity firms and investment banks generate proprietary deal flow by analyzing large amounts of data to identify potential investment opportunities. By using AI-powered tools, firms can uncover new investment opportunities and gain insights into market trends and industry developments that may have been missed otherwise. What’s especially good in AI-powered methods for proprietary deal flow is the fact that it saves massive amounts of time and effort. Artificial intelligence powered tools can scan and analyze millions of unstructured data points and generate insights that are accessible and actionable.
One such tool is Inven, an AI-powered company data platform designed to help private equity firms and investment banks generate proprietary deal flow. Inven uses artificial intelligence and natural language processing to analyze vast amounts of unstructured data from sources such as news articles, press releases, and social media to identify potential investment opportunities. The platform can also help firms track industry trends, monitor competitors, and build relationships with key stakeholders. Using Inven or other similar AI-powered tools helps you find the most interesting companies and get their contacts all in one place.
How to Use Inven to Generate Proprietary Deal Flow
To use Inven to identify deals before everyone else, follow these steps:
1. Define your criteria
Before using Inven, you should define your criteria for the target company. Define the desired industry or niche, geographical market, company size, ownership type and growth rate. This will help the platform identify opportunities that match your firm's investment objectives.
2. Set up your account
If you don’t have an Inven account yet, you can get access here. We’ll set you up so you can use AI to find proprietary deals for your private equity company or investment banking firm.
3. Configure your search
Configure your search by specifying the example companies, keywords, industries, and geographies that you are interested in. With Inven, you can search with a single example company and find all companies internationally that do the same thing. You can use the Intent to sell filter to narrow down companies that are more likely considering an acquisition in the future.
This allows you to find significantly more and better potential targets than using traditional industry codes or legacy softwares. By using our advanced filters, you can make sure you find all the relevant companies that match your wanted criteria. Inven includes filters such as:
- Ownership: family-owned, private equity backer, private, public
- Business model: software, service, manufacturing, reseller,...
- Headcount
- Location
- Operating location
- …and a lot more!
4. Analyze the results
Once you hit search, Inven will analyze millions of company websites, media content and other relevant online content so that you don’t need to. As a result you’ll get a list of companies that match your criteria - with their contact data. You can directly contact all the relevant stakeholders: owners, CEO’s, CFO’s and Head of M&A’s.
Inven’s Projects feature helps you build potential target lists. By using projects, you can easily add all potential companies to one list and export the list as many times as they need, without any limitations.
5. Contact and Follow up
Once you have identified potential companies, you should start a proactive outreach. By building lists focusing on small niches, you can personalize your outreach to these companies. You can export the project lists with the contact data and easily contact all relevant stakeholders. Also, remember to follow up with them! It’s essential that you and your company stay on top of their mind.
What makes Inven’s approach unique?
AI based proprietary deal sourcing strategies are unique in that they are able to analyze the data from all markets, which warrants that all potential targets are covered. This guarantees better deal flow for private equity and investment banks. At the same time, they are able to reduce hours of desktop research from M&A professionals’ work week, and free their time and focus on more productive tasks in the acquisition pipeline.
In Desert Horizon Capital’s case, the search fund uses Inven to increase proprietary deal flow alongside their current strategies of identifying potential targets.
Inven’s tool provides users with an intuitive interface, which is adopted very conveniently into a firm’s existing proprietary sourcing process. By utilizing AI keyword prompts, Inven’s tool finds all relevant companies and their data points and combines them all in one place. This ensures that M&A professionals don’t have to rely on company databases, manual lists or industry codes. Search results include ownership structure, operating location, funding and key decision maker contact information, among other data points.
Implementing AI in Your Deal Sourcing Strategy
What to take into account when adopting AI into your deal sourcing strategy? Here are some practical steps for integrating AI into deal sourcing. These AI techniques and best practices can make your proprietary deal sourcing even more rewarding.
Tweak the NLP filters for optimal results
Identify your target keywords and example companies. Start with fewer filters and keywords to get more coverage on the results. Refine your inputs over time. After assessing, narrow down by adding filters. Add more emphasis on the keywords more relevant to your investment strategy, and exclude results that are irrelevant. This ensures you get the most fitting target list.
Make use of CRM integrations
Integrate DSP into your CRM system, such as Hubspot or Salesforce to ensure smooth information flow and client relationships.
Save Your Projects independently
Save your ongoing deal searches into their own projects to make sure you can return to them later. Add notes into company profiles and share them among your team.
Exclude companies from lists
Filter out irrelevant opportunities and focus on the most promising leads. This saves valuable time and resources, allowing you to prioritize high-quality deals.
The Competitive Edge: Supercharging Proprietary Sourcing
Proprietary sourcing allows firms to access high-quality deals not readily available to the public. This translates to several key benefits, including reduced competition, closer relationships with company founders and management teams, and greater control over the deal timeline and negotiation process. This article explored various strategies for building a steady deal flow pipeline.
The future of proprietary deal sourcing lies in the powerful synergy between human expertise and AI capabilities. While traditional deal sourcing methods continue to be important for PE firms and investment banks, AI injects a new level of efficiency to their proprietary deal sourcing.
Now, proprietary sourcing empowered by AI is no longer a luxury, but a necessity. AI-powered tools sift through an ocean of data to identify promising targets that may have been missed through traditional methods. Tools like Inven expand the target pool aligning with your investment criteria. Furthermore, AI streamlines the initial screening process and focuses your attention on the most promising leads.
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