Pros and cons of outsourcing proprietary deal-flow generation?

February 09, 2021

by a searcher from Harvard University in Boulder, CO, USA

I'm running a self-funded, geographically restricted search in the DC area. I've initially been focused on broker outreach to build those relationships to start. I'm now looking to build out my proprietary deal-flow pipeline. I think proprietary outreach is particularly important for my search mainly because of my geographic restriction - sitting around waiting for companies to be listed will be pretty slow-going.

I see two options for proprietary deal-flow generation and management:

Option 1: I could go the traditional route for this deal flow: hire 4-6 unpaid interns, generate a big list of target companies by using things like ZoomInfo + scraping websites (I'm a coder so can actually write those scripts myself), and reach out myself

Option 2: I could outsource this instead. The first company I'm looking at, CapTarget, will build a company list (+a few hundred companies each month), reach out to them via email 5-7 times, and track responses. They have a flat monthly fee. There may be other alternatives that offer more or less for this service (I'd love to hear more about any such alternatives you know of).

The big pros I see of outsourcing are:

1) Minimizing time I have to spend on intern hiring
2) Enabling my pipeline to be robust even while I'm distracted by due diligence/post-LOI excitement
3) I can only search part-time this summer due to a preexisting commitment, which will make managing interns, keeping up dealflow, AND assessing deals pretty difficult. This problem goes away after the summer.

The cons I see are:
1) Unclear quality generated from deal-flow partner - hard to know if I'm really reaching out to all available companies + if they are high-quality
2) Interns could potentially be useful outside of just generating company lists (?)
3) ???

Would love advice here, as well as recommendations (and anti-recommendations) for potential companies to consider partnering with (particularly ones who don't charge a finder's fee, or ones that you've had a positive experience with personally).

Reply by a searcher
from United States Military Academy in Raleigh, NC, USA

Thanks for the tag ^redacted‌. ^redacted‌, I love this topic and have some pretty strong opinions on it. Let me first acknowledge that they are only my opinions which means they're probably not right for everyone!

For geographically restricted searches especially, certainly don't outsource, and I'd even recommend against interns until a later date. I think too many of us searchers are quick to play the numbers game as its taught in most accelerators and proper searchfunds. Those guys and gals are playing the national game. That IS a numbers game. But it's also a different game. In a geo-search, your goal shouldn't be to play the numbers game. It should be to build a network of lawyers, CPAs, brokers, business owners, M&A teams, who KNOW YOU PERSONALLY! Virtually every proprietary deal I looked at during my geo-search came through a "friend of a friend". I'm not saying that the numbers game won't work in a geo-search...it clearly has worked for many searchers in the past. But I do believe it prevents you from networking the right way in your local community. Despite my own choosing to build a company (after some market analysis on a target company), I've built a network of some really incredibly people over the last 12 months in our area (Raleigh) that are going to be massively valuable to our company's success in this local market as we grow. Had a relied on mass outreach, whether with interns or otherwise, I wouldn't have this network. It was a total grind, and at one point I, too, considered interns, but after about 6 moths of pounding the pavement and staying top of mind with all of these "new connections" we started to get phone calls on a weekly basis that started with "I had lunch with a guy last week who wants to meet you..." or "Would you be interested in meeting with this owner? He's thinking about selling..."

Lastly, I'll add, if you do use interns or outsourcing. Definitely be sure to segment your target audiences as much possible so that your interns can properly customize messages. There's nothing worse than blanket emails that feel like blanket emails. Find ways to stand out in an ocean of cheap capital! Good luck and best wishes on your search! -AG

Reply by a searcher
from INSEAD in Los Angeles, CA, USA

Here is a European perspective, from Benelux. I'm making use of a large team of interns that I change every 3 months or so. Over the past year I have worked with about 50 interns. In reality we're always in recruitment mode, but we have designed our process in such a way that our interns recruit and train each other. We have had to create a manual to make sure everything runs smoothly. The result is that interns source great companies, find the contact details, and personalize the letters. When the leads revert (about 10% show interest) then the interns are also the first persons who research the firm to see whether they are a fit for us or not (we are industry agnostic). In practice this means that I only meet with companies that somehow meet our criteria. This process is labor intensive, but it works. It requires minimal input from myself and allows me to focus on the meetings with the business owners. I didn't have the luxury to automate the process in the way that you guys do in the US, and I have a geographic focus, but I can imagine that outsourcing the prop search lowers the quality of the leads. Also working without interns means that you lack a first layer of analysis before you decide to jump in a meeting with an owner. Overall I'm happy with my process and I think it's also a great way to improve my managerial skills.In addition, it's great fun to work with a team of motivated individuals who color my days.

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