Why frugal origination in the age of abundant capital?
In today’s era of ample capital, there has been a notable surge in interest in software rollups. This heightened interest can be attributed in part to economic slowdowns, which have led VC and PE investors to search for innovative investment opportunities. However, securing VC funding often comes with substantial commitments. Some recently established rollups, such as Unaric, have set ambitious acquisition targets, aiming to acquire more than 40 companies over the next three years. This underscores the paramount importance of deal origination for these firms. As the rollup landscape continues to expand, coupled with the increasing demand for costly M&A professionals, it’s an opportune moment to explore how M&A technology can assist serial acquirers and their advisors in achieving cost savings and superior results.
The Old Way of Finding Deals
Traditionally, rollup firms, exemplified by the likes of CSI (considered pioneers in software rollups), have relied on hiring teams of junior deal originators. These recruits often possess backgrounds as enterprise BDRs or are recent college graduates. Their primary responsibility entails identifying potential targets within CRM systems, and scrutinizing target websites for updates, funding history, and management changes, among other details. Typically, these junior originators command starting salaries of around $50,000 (before bonuses), making even a small team quite costly before any acquisitions occur.
These deal originators frequently rely on laborious manual methods such as Google and LinkedIn searches, coupled with the use of pricey yet limited tools like Crunchbase and Apollo.io, to gather information about target companies, such as employee counts, incorporation dates, and FTEs. Often, these individuals lack familiarity with web scraping or coding, leading to substantial time wasted on these data collection tasks, thereby limiting the number of deals that can be sourced.
Another area where inefficiencies arise is in preparing for conferences. This often entails the manual task of copying attendee lists, searching for attendee websites, and compiling information about company size and industry—a time-consuming process with potential information gaps.
All of these manual tasks divert deal originators’ attention away from the most productive activities, such as phone or video calls with prospective targets. A successful deal originator aims to make 20-30 calls per week, necessitating ample preparation time for each call to check for any significant developments. Needless to say, engaging in cumbersome manual tasks during peak productivity hours is far from ideal.
Introducing Deal Sourcing 2.0
At Sourcescrub, our mission is to help dealmakers source more deals by giving them the most complete, accurate and connected view of the private company universe. Established in 2015, we operated as a bootstrapped company for five years before securing growth equity investments from Mainsail Partners in 2019, followed by a funding round from Francisco Partners. Here’s how we can help serial acquirers streamline origination costs while enhancing efficiency.
Eliminating Manual Tasks for Deal Originators
Sourcescrub maintains an extensive database of more than 15 million companies spanning multiple countries, with real-time data updates sourced from 150,000 distinct sources. Even more impressively, a substantial 84% of our data covers companies that have not yet undergone transactions, making us home to one of the world’s largest databases of bootstrapped companies—a treasure trove for serial acquirers.
Consider the example of industry conferences: Sourcescrub systematically tracks virtual conferences and webinars, extracting and enhancing attendee lists. With our conference data, deal originators can easily identify high-quality prospects and focus on scheduling meetings, rather than investing hours in name qualification. To date, we’ve indexed over 135,000 conferences, and this number continues to grow year after year.
Sourcescrub goes a step further by enabling deal originators to identify key individuals leading these companies. Our platform boasts over 1.8 million comprehensive profiles and backgrounds of CEOs, CFOs, executive teams, and investor contact information, negating the need for costly tools like Apollo.io, which can alone cost $1,000 annually.
Another significant time sink for deal originators is CRM management. While they should ideally spend most of their time engaged in calls, many find themselves manually copying and updating data, which is both time-consuming and prone to errors. Sourcescrub offers native integrations with several popular CRMs among serial acquirers, including Salesforce, Affinity, DealCloud, SugarCRM, and Dynamo. These integrations facilitate frequent syncing between platforms, ensuring acquirers can track ownership and investment changes seamlessly, preventing them from reaching out to a business that has just been sold to a competitor.
What about the AI?
While completely replacing dedicated deal originators remains a future prospect, we’re already integrating AI into our product. In the summer of 2023, we introduced SourcingGPT, a generative AI tool set to revolutionize and expedite typical dealmaking procedures. SourcingGPT significantly reduces the time needed to create a deal-sourcing market map and outreach strategy, slashing hours down to mere minutes. Moreover, it addresses concerns related to AI-generated inaccuracies and security risks.
Our Sourcescrub platform already employs AI techniques for various tasks, including data classification and synthesis, identifying similar companies, analyzing web text, estimating revenue, and determining industry categories and company descriptions. These AI-powered features enhance the platform’s capabilities even further.
How LFM Capital boosted its deal sourcing productivity
LFM Capital, a Nashville-based private equity firm, serves as an exemplary case of how Sourcescrub contributes to cost reduction and improved origination. Prior to adopting Sourcescrub, LFM faced an arduous and time-consuming process to source deals aligning with their target market and thesis criteria. This challenge was so substantial that the firm employed up to 10 college interns each semester to handle the task.
Jessica Ginsberg, LFM’s Director of Business Development, reflects on those times, saying, “We would do things like download a list of 100,000 companies from Hoovers and have our interns go through it NAICS code by NAICS code.”
Fast forward to the introduction of Sourcescrub, and LFM’s approach was transformed. The firm transitioned from manually sifting through conference lists in search of hidden gems to boosting directly sourced opportunities by a remarkable 200%, all while enhancing productivity by 2.5 times. Instead of relying on interns for manual research on inbound and directly sourced deals, LFM harnessed Sourcescrub’s capabilities to access millions of data points on millions of non-transacted companies simultaneously. With intuitive search functions and robust filters, LFM’s team could easily locate and evaluate opportunities with just a few clicks.
The tool provides instant insight into companies’ locations, ownership, growth trajectory, executive contacts, and more.
“I honestly can’t think of the last opportunity that didn’t originate in Sourcescrub,” says Katie Mesha, LFM’s Business Development Manager.
Next steps
To learn more about SourceScrub and how you can use technology to maximize the dealmaking efficiency, contact Tristan Alden (Senior Sales Director) or book a 15-minute meeting with him.
