Investing 101 2.0
Investing 101 2.0
Sourcing a Deal
Sourcing a Deal

Sourcing a Deal

Introduction

"Sourcing" and "Execution" are two broad pillars of what an investor does. Sourcing is the process of finding investment opportunities that are interesting. Execution is doing the work to decide whether or not you will actually do a deal. To be successful long-term as an investor you typically need to excel at both of these skills.

At a high level there are several buckets of activities within sourcing:

  • Finding and Exploring Trends
    • Passive
      • You should be searching for interesting trends and finding resources to get you better informed. This can often come from having a curated set of blogs and newsletters that you read to see what types of things are being talked about.
      • Depending on the specific verticals and types of investments you're looking at the things you might be reading will differ. It's important to figure out what the best resources are within your specific focus area.
        • Examples of Blogs & Newsletters
      • See
        The Investing Library
        The Investing Library
         for additional recommendations
      • See also
        Opportunity Canvasing
        Opportunity Canvasing
    • Active
      • While a good investor is reactive, a great investor is proactive. One of the most valuable ways to gather information is researching specific technology industries, verticals, and themes. They can be as broad as researching the “energy utility industry” and as specific as researching “accounting software for farm-focused agriculture.” The typical output of this research should begin with thematic takeaways and progress to key players in the space.
      • See
        Research
        Research
    • EXAMPLE
      • You start to see more and more companies are hiring people remotely in the news. You start to wonder how they're handling this in terms of HR, taxes, payroll, etc. Isn't it pretty complicated to be employing people in lots of different countries?
  • Identifying Interesting Targets
    • Alerts
      • As you start to find interesting trends you need to create a landscape of the relevant players. You can keep this in lists or logos on a slide to help you visualize how all of these companies interact with each other, who seems to do what, etc.
      • You need to stay informed with what is going on with these target companies. The best way to do this is by setting up alerts around the specific companies you're tracking to ensure you hear the relevant news.
        • Example of Company Alert Trackers
      • These alerts should change / get updated over time as your interest level in specific companies comes and goes.
    • Relationships
      • Another way you can identify interesting targets is through building a personal network. This can be professors, family friends, investors, consultants, CEOs, people who work in relevant industries, anyone.
      • Always asking anyone you meet "what are some of the most interesting companies you've seen" can be an important way to identify targets.
      • Similar to carefully organizing the way you track companies you should also have a good system for keeping track of the people with whom you interact so that you can build a relationship over time, keep track of what you talk about with them, and understand what they're interested in so you can be helpful to them as well.
      • See
        How to Network
         and
        Building a Personal CRM
    • EXAMPLE
      • As you dig in on your thesis around increasing amounts of remote workers you start looking for businesses that are specifically catering to that need and you find
  • Contacting Those Targets
    • Before you ever reach out to a prospect you should understand what they do and what you can do for them. You need to demonstrate knowledge of their industry or specialty, but you also have to have a good pitch whether that's why your firm is interesting, or why you're contacting them. If you don't have a firm there is also an opportunity to reach out with the hope of learning from them and being helpful where you can.
    • Cold Outreach
      1. Identify the right contact using LinkedIn (typically the CEO)
      2. Find their email using one of a number of different tools
      3. Write a relevant email explaining why you're interested in talking to them and introducing yourself / your reason for reaching out
        4. Cold Email Templates
      4. Figure out a good cadence for following up if they don't respond to your initial email (typically once every 1-2 weeks)
      5. Cold Calling: Some people will also cold call a company after a few emails. They'll typically find a company's main phone number on Google and ask for the CEO. If you do this you should have an effective and very short pitch explaining who you are and why you're calling
      6. Handwritten Notes: Another strategy you might try if you don't get responses to your emails is to send a CEO a handwritten note expressing your interest in the business and your hope that you can connect with them.
    • EXAMPLE:
      • Once you decide to reach out to some of these companies that are handling HR, benefits, etc. for remote workers you decide to email them. You find their email and write them a note with the following components:
        • Brief introduction of who you are
        • Description of why you're interested in their business
        • Broader description of your firm and unique positioning
        • Offers for help or connections that might be valuable
  • The First Call
    • Once a CEO responds to you the last step before possibly entering into an active deal process that would require execution is the first call. The goal of this call is to (1) introduce yourself and your reason in talking to them, and (2) get as much information about the company and their product / service in order to determine if they're interesting enough to continue to build a relationship with.
      • Some Examples of First Calls

Tips & Tricks

  • "Always Be Sourcing" (ABS): You never know when you'll find an interesting opportunity. You'll sometimes find yourself thinking, "I wonder how this website does that?" Or "I wonder how that got delivered / updated?" ABS is about investigating that curiosity. Figuring out the thing that is powering your favorite product or service could lead you to a great investment.
  • Stay Organized: Whatever your process is it's important you have a system for keeping track of companies that are interesting, especially as you're reaching out to them. You'll need to know who you last emailed or called, if they responded, if there is someone you know that can make an introduction. All of that needs to be kept organized in some kind of system. See
    Sourcing: Other Resources
     for more details

Recommendations

Sourcing: Other Resources