Deal Origination

A Complete Guide on Deal Origination Services

 Deal origination, also referred to as deal sourcing, describes the method that some firms use to find suitable investment prospects, either by

By teammarquee . September 22, 2022

Seed Stage Startup valuation

 Deal origination, also referred to as deal sourcing, describes the method that some firms use to find suitable investment prospects, either by collecting market information or making the transaction for themselves through connections with the other parties. Let us now dive into the details of what is deal origination?

Deal origination is the process of finding investment options by finance companies, private equity companies, and venture capital firms. A deal origination typically happens in two ways:

The business approaches the party willing to close a transaction or the party who comes to you with their willingness to close a deal. 

If you are a small business looking for acquisitions, you need to be more proactive in sourcing the investment deals for your business. One can do so by collecting information about the market’s transactions and determining who is willing to make a reasonable offer for the deal.

Deal origination is also a time-consuming process as one needs their time to make or think about a potential deal. This is a primary reason why most successful firms outsource the deal origination process or establish an in-house deal sourcing team to oversee the entire deal origination process. This team is typically made up of many experienced finance professionals who have a successful track record in deal origination. 

Understanding deal origination Services 

Before discussing the deal origination services, let us first understand what does origination mean. 

During the origination process, the vendor submits a plethora of financial information to gain credibility in the market. In other words, it involves preparing a pitch for investors or buyers. This is the very first step in the process of deal origination. This deal is then closely inspected, marketed, syndicated, and implemented. 

Let us now understand what is deal origination service.

The Deal origination services are designed to improve the efficiency of the entire process of deal origination by providing investors with constant investment opportunities in small and mid market companies. 

The two most commonly used approaches for deal origination are the network approach and the online deal origination approach. Under the network approach, the investment firm uses its existing client networks and reputation in the investor community to source new deals. This is one of the oldest and most prevalent deal origination methods that is still widely used today. However, online deal origination is more contemporary and uses digital platforms and algorithms to help investors find suitable deals. 

The deal origination services also help in the process of mergers and acquisitions. They perform a wide range of activities, from the screening and deal origination to the final valuation and drafting of the LOI. This process aims to ensure and maintain a viable deal flow between the parties. Deal origination services entail tons of other benefits such as:

  • They help you gain knowledge of the deals in the market so you can make better bids.
  • They scan the market and bring you the best deals to suit your investment goals.
  • They improve the quality and quantity of deal flow by generating leads and maintaining good relationships with the deal sources.
  • They help companies manage their merger and acquisitions.

Whether a small-scale broker selling a family-owned business or a wall street investment banker selling a multi-billion dollar company with complex structures, they have all conducted some form of deal origination. The deal origination services are designed to improve the efficiency of the deal origination and give advice on company’s transactions. At the time of company mergers, what M&A bankers do is that they take up their own time thinking about deal ideas that they can make. The process of this M&A deal origination is as follows:- 

During deal origination, one’s goal must be to identify the targets for acquisition based on clearly defined criteria such as strategic fit, financial performance, and competition. This should happen when the companies merge for a better deal. This process happens in two ways:- 

  1. One should contact the parties in the market who are looking for an investment opportunity.
  2. The parties in the market shall contact you with their willingness to make an offer and close a transaction.

The likelihood of one needing to be proactive in sourcing their exclusive deals increases with the company’s size. There are various ways in which deal sourcing strategies can be supported. The most common ones are investment banks, online platforms, trade shows, and conferences. 

Typically the management team goes to the acquiring company to assess the market and identify strategic opportunities, risks, threats, and value. Some of the best methods for M&A deal sourcing can be to maintain a precise and professional website that highlights your team’s capabilities by keeping the website updated. 

Next, select a target industry and gather contacts within it by conducting outreach through social media and networking. The database will then be built and refined. The most successful merger and acquisition deals use online scouring platforms as a part of their deal origination. 

Process Involved in Deal Sourcing

Deal sourcing, one of the processes involved in deal origination, enables users to automate tasks like deal tracking that would otherwise be time-consuming to complete. Let us first understand what is Deal sourcing in deal origination services:

Deal Sourcing: The first step in the deal flow process is deal sourcing, also known as deal origination. The process of deal sourcing is all about finding the right leads and bringing them to your company’s interest.

Let us now understand the process of deal sourcing works:

Determining prospective clients– 

This can be done in two ways. The company may use the traditional approach or employ data sourcing algorithms to match the user’s requirements. These algorithms will help generate the leads that meet the client’s expectations of financial acquisitions. There are also several deal sourcing platforms that use algorithms to match the businesses with their potential investors. Using the algorithms will increase the conversion rate as the message is only targeted to the right set of audiences.

Studying the existing business– 

In the traditional method of deal sourcing, it is often impossible to use quantifiable performance indicators. This makes the traditional deal sourcing very complex. However, it is easy to track the company’s information when using online platforms.

In this step, the investor will try to understand the business in terms of its market position, competitive advantages, industry trends, growth avenues, cash flows (both stable and recurring), capital requirements, and management team. Since the capital markets are crowded, investors are constantly looking for data to help source the right deals. 

Shortlisting the businesses that coincide with your strategy:

When shortlisting the targets, the investors are generally interested in the pre and post-money valuation of the company, the revenue figures, its industry, total capital raised, and other non-financial metrics.

A pitch book of a company provides the investors with handy visual aid. Whether it is about their investment sourcing or m&a deals, a pitch book can help the firm find the right acquisition targets.

Connect with the targets:

Once the investors narrow down the list of promising investments or acquisitions, they can also identify the best contact person using the pitch book and reach out to them immediately. 

Making the strategies, going forward– 

In this step, the parties make suitable strategies before moving forward. The strategies are made keeping in mind several factors like whether the investment would diversify the investor’s portfolio or add to the current portfolio and whether there is any other purpose for investment. 

Deal sourcing for private equity can be done in many other ways like by collecting high net worth equity funds and looking out for investment banking deals within the market, trying to discover the seller and offering them a competitive bid for the deal, etc.

When we deal with private equity, it seems easier on paper and in practice, but in a famous equity study, “where are the dealers”, David Teten shares that an average investor in a private equity firm will review at least 80 investment opportunities before making one single investment. 

Deal Origination Strategies used in Private Equity

Deal sourcing techniques are the foundation of any successful private equity business. Previously, corporations used a more traditional private equity deal sourcing model focused on investor networking and contacts. However, advances in data and technology have paved the way for deal origination platforms, which enable organizations to adopt a more organized, predictive, and proactive approach to seeking and closing agreements. Private equity deal flow has become more accessible and effective in sourcing private equity financing. We’ll now understand how to identify private equity prospects utilizing new style deal sourcing tactics.

The performance of deal origination is critical to the profitability and survival of a financial institution. It is based on these organizations’ previous success, market reputation and execution capabilities. Although it is time-consuming, deal sourcing helps organizations maintain a full pipeline with a regular supply of opportunities. Some of the firm’s most prominent deal origination strategies include: –

1. In-house deal sourcing: 

Companies utilize a specialized deal source team that works entirely for the investment companies and includes skilled financial professionals with a significant understanding of deal sourcing in markets.

2. Contract/assignment deal sourcing specialist: 

Contract deal sourcing experts are specialized businesses/individuals who are self-employed in deal origination. Their primary responsibility is to collaborate with financial institutions in sourcing clients. A deal sourcing specialist is generally paid on a task basis and is not permanently hired by the company. These individuals/firms have the required expertise and often work with various customers in deal finding.

3. Establish Sector-Specific Strategies: 

More businesses are increasingly focusing on other industries to diversify their investment portfolio. Identifying, researching, and segmenting all of the firms in a specific space is one of the initial tasks. This is commonly called market mapping. Market mapping allows businesses to comprehend the marketplace, justify an expenditure, and focus on specific objectives. It enables businesses to establish deep subject knowledge and experience before pursuing a company.

4. Look for Deal Indications: 

Firms with a continuous high transaction flow that commits billions in brand-new investments each year utilize more scientific data in their sourcing operations. One method is to aggressively seek firms that are emitting “deal indicators,” or data elements that your organization has identified as indicating financial readiness or interest. 

A corporation hiring a new CFO is one sample of a deal signal. Another possibility is that they are increasing conference attendance. Paying attention to transaction signals like these enables organizations to search out companies that are both appealing to the investors and inclined to accept outside financing.

The initial stage of every transaction is deal sourcing, which is also critical to Merger and Acquisition firms. Simply put, it involves generating leads and managing connections with intermediaries in order to close a deal. Every firm has different merger strategies at the time of deal sourcing. Some businesses use financial companies or advisers specializing in deal sourcing, while others leverage in-house resources by forming a specialized deal origination team.


Venture capital is a form of equity that is gaining a lot of popularity among small and emerging companies that have a potential for substantial growth 

Our economy is heavily reliant on venture capital funds. Venture capital deals are usually the biggest source of funding for businesses. It promotes game-changing inventions that will change the world and enables startups to keep creating the next big thing. While deal sourcing refers to identifying and discovering different investment prospects, the screening procedure helps in the initial selection of businesses in which the investor is attracted. 

One of the most crucial steps in the investment process is the sourcing and screening of venture capital deals. To source private capital efficiently and focus your search on the finest options is essential for every venture capitalist. To make sure that potential investments are a suitable fit for your portfolio and your business, you also need to be able to screen them effectively.

The venture capital deal flow is a pipeline where hundreds of potential companies enter, but only a small percentage are actually invested in, and fairly a small percent find success.

Let us now understand what venture capital deal sourcing and screening actually mean.

Deal Sourcing: As we have already discussed, deal sourcing is the very first step in deal origination that focuses on finding the right leads and using them in your company’s interest. Now, let us first understand how Venture capital firms find deals. Dealmakers typically find deals through social connections and recommendations. Getting referrals from knowledgeable and dependable contacts in the sector can reduce the risks associated with investments, particularly if the referrer has already done some preliminary research and due diligence on the investor.

Deal Screening: The reason why venture capital firms like to screen businesses is to make sure that the businesses they invest in have the capacity and potential to significantly add value to their portfolio. The screening process helps the investors in the initial identification of the companies in which they might be interested in investing. Most venture capitalists are interested in businesses that are seeded and expanding. The process compares potential deals after the initial information sourcing and chooses the most profitable opportunities using the data collected.

For the businesses seeking investments, the caliber and worth that the Venture capital firms bring to the table can significantly enhance the value of their capital. Businesses must constantly screen their networks to find the individuals/venture capitalists who would be willing to make investments.  

When venture capitalist is looking for prospective investment opportunity, they are generally interested in the factors listed below:

Management: The effectiveness of the company’s management

Market: The nature of the sector in which the business operates

Competition Level: The level of competition a corporation must contend with

Risks: The extent of the risks the company encounters

Despite having high expectations for each investment made, the majority of venture capital profits come from a small percentage of investments. As a result, even a modest improvement in the way portfolio firms are chosen can significantly enhance fund performance. 

Deal sourcing and screening them appropriately is the primary foundation from which you can begin supplying your deal flow pipeline. Only a few of the hundreds of sourced companies may make it to the very end.

Therefore, it’s crucial to source as many deals as possible to discover that one treasure is worth your money.


It takes weeks, months, and sometimes years to get the best investment deals, so one should always be on a watch, especially if you are a small growing company. A deal origination company updates the deal pipeline for funds, pitches the right buyers, generates leads, and manages relationships between the intermediaries.  

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In simple words, deal origination is the sourcing of investment opportunities by investment banks, venture capital firms, and private equity.

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