How Do Private Equity Firms Source Deals? The Data
How do private equity firms source deals? A survey of 79 PE investors breaks down where closed deals came from, and the relationships behind each source.
By Brett Kaufman. 8 years using relationships to build sales pipelines, from political fundraising to a 7 figure business to running matchmaking for two communities. Over 1,000 introductions facilitated.
How do private equity firms source deals? In a survey of 79 PE investors, 35.6 percent of closed deals were proactively self generated and 33.3 percent came from investment banks, with the rest from deal brokers, executive networks, management teams and other firms. Both main channels run on relationships someone keeps current.
The Monday pipeline meeting runs long. Forty names on the screen. The partner asks who has talked to the banker at the regional firm that ran the last two deals in your sector. Silence. Somebody thinks the associate who left in June owned that one.
That banker has a book coming in Q1. She will send it to the groups she has heard from lately.
How do private equity firms source deals, by the numbers?
The best public breakdown is still the survey by Paul Gompers, Steven Kaplan and Vladimir Mukharlyamov, What Do Private Equity Firms Say They Do?, published in the Journal of Financial Economics in 2016. They surveyed 79 PE investors managing over $750 billion. Here is where those investors said their closed deals came from.
| Source of closed deals | Share (mean) | Usually proprietary? |
|---|---|---|
| Proactively self generated | 35.6% | Potentially |
| Investment bank generated | 33.3% | Unlikely |
| Executive network | 8.6% | Potentially |
| Deal brokers | 8.6% | Unlikely |
| Inbound from management | 7.4% | Potentially |
| Other PE firms | 4.3% | Unlikely |
Source: Gompers, Kaplan and Mukharlyamov, Table 20, with the proprietary labels as the authors describe them.
Asked to sum it up, the investors considered almost 48 percent of their closed deals proprietary in some way. The authors say plainly that they could not verify what proprietary meant, or whether those deals were truly advantaged. Read it as what PE investors believe about their own sourcing. That belief shapes how they staff it.
What does proactively self generated actually mean?
It means the firm reached the company before a banker ran a process. In practice that is a deal partner who has known the founder for three years, an operating partner who used to run a competitor, a lawyer or CPA who mentioned that a client is thinking about it.
Self generated is not a database query. Databases tell you who exists. They do not tell you who is ready, or who will take your call. That comes from a person who stayed in touch.
The survey also found smaller and younger firms generally source more proprietary deals, and that younger firms lean more on their executive networks. If you run an emerging fund or a lower middle market strategy, the relationship channels are your edge, not a side project. The same pattern shows up in search funds: the IESE and Stanford International Search Funds 2024 study found searchers ranked proprietary search, mostly direct contact with owners, as their top source of deal flow.
Is banker sourced deal flow just an auction?
Mostly, yes, but the relationship still decides who sees the book early and who gets a real second look. A third of closed deals came from investment banks in the survey. Those are rarely proprietary. They are still relational.
Bankers decide who gets the teaser on day one versus day ten. They decide who gets a heads up that a process is coming, and who gets a call when a buyer drops out in round two. Banker coverage is a list of people, and every person on it remembers who called last.
How many deals do PE firms look at to close one?
About 100 to close 6, in the survey. For every hundred opportunities considered, the average investor deeply investigated fewer than 24, signed an agreement with fewer than 14, and closed on about 6.
That ratio is the real argument for coverage. To close six, you need a hundred looks. To get a hundred looks, you need a lot of bankers, brokers, executives and owners who think of you when something moves.
The coverage map
Here is how I would set up deal sourcing coverage for a small fund or independent sponsor. Each channel from the table maps to a group of people.
- Owners and founders (self generated). The companies on your target list, and the founders you have met but not bought from. Touch every 60 to 90 days with a real reason: a hire, an award, a post, an expansion.
- Bankers (bank generated). Every banker who ran a process in your sector in the last three years. Touch every 30 to 45 days. Pass fast and clearly on books that do not fit.
- Executives (executive network). Operating partners, former CEOs in your space, board members. They hear about founder fatigue before anyone.
- Brokers (deal brokers). For lower middle market deals, the brokers covering your geography and sectors. See the business broker relationship playbook.
- Management teams (inbound). Executives who want to back a buyout of their own company. They come to firms they already know.
- Other firms (other PE). Groups that pass on deals too small or outside their thesis. They send them to the people they like.
Write down an owner for each relationship. A name, not a team. When the associate leaves in June, the banker should not leave with him.
For building this from the contacts you already have, see how to build proprietary deal flow from your existing network.
Where coverage breaks
It breaks during the deal. A firm signs an LOI, and the deal team disappears into diligence, financing and the purchase agreement for months. Coverage calls stop. The banker who sent the last book hears nothing until the team surfaces and needs the next one.
Your firm CRM records that gap after the fact. If you are choosing one, I compared the platforms in best CRM for private equity. The platform holds the record. It does not text the banker for you.
Here is how I would run the people side
I built FRONT OF MIND because I watched operators meet the right people, have real conversations, and then disappear for six months, buried in diligence or a capital raise. By the time they resurfaced, someone else had the relationship.
It opens on your 10 minutes for today. Each person has a one line reason why today: they posted, their company was in the news, a follow up is due, a pipeline deal has been quiet 7+ days, or they are going cold. Ask Liala out loud, “who do I know that is an M&A advisor,” and get the right people with why. Every draft is a text style message, 40 words max. Nothing sends without your tap.
It sits next to your firm platform, not in place of it. Contacts are encrypted, no one on our team looks at them, and you can export and delete anytime. It runs in your phone’s browser and saves to your home screen.
If FRONT OF MIND doesn’t surface people in your network worth reaching out to within 72 hours, we’ll refund you. No questions asked.
Start free with your first 25 contacts and see which banker comes up first. See how it works