A Common Thread: The Many Layers of Private Equity BD
Matt Rooney
I help Mid-Market Private Equity firms hire exceptional investment and business development professionals. Co-Host of The Deal Sourcery Podcast
Something I find myself highlighting often is the wide variety in private equity business development.
This is true on a few different levels:
Compensation - You might think the rule is simple – bigger fund = higher compensation, but that’s not always the case. Some large funds take different approaches to BD, like building out big teams or leaning heavily on junior members which can affect their BD team's compensation packages. On the flip side, consider a smaller fund that allocates its resources to a single BD hire. This role, carrying more individual responsibility and influence, might offer higher compensation compared to a similar position in a larger fund with a broader BD team.
Focus - Discussions about BD professionals' focus often revolve around the balance between proprietary and intermediary sourcing. The question is often about how time is divided between these two strategies. The market segment you're targeting, the types of companies you're interested in, and your industry focus significantly influence this balance. For instance, proprietary sourcing might not be as effective for industrial companies with over $50m in EBITDA as it is for software businesses with $5-15m in ARR. Moreover, there are strategies beyond these two. Some BD professionals dedicate much of their time to identifying operators or executives who can serve as 'river guides' in specific markets. Others engage more deeply in thesis generation, spending time in research, market mapping, and discussions with industry experts.
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Team - Many firms are still asking if hiring even one dedicated BD professional is necessary. The short answer is yes, it's necessary (no bias here). But beyond those undecided about the role's value, another question comes up: should a firm hire just one person or does it have to be a team? The short answer to this one is, it depends. It’s important to consider the volume and nature of deals your firm aims to close in a given year. Assess whether partners at the firm are keeping up with maintaining banker relationships effectively. If the current setup is yielding results, well, maybe no change is needed. That said, conversations with a significant number of current BD professionals suggest the workload might be a tall task for a single person. With potentially thousands of intermediaries and ten times as many companies (depending on your target market), the scale of potential interactions is huge. This doesn't imply every firm has to build a deep bench of BD professionals. There are plenty of firms that do more with less. Many firms successfully distribute sourcing responsibilities across the deal team, embracing the idea that, “Sourcing is a team sport” as Dan Herr put it to me recently. For a lot of firms, the addition of a single individual—a 'player coach'—to empower and enable the entire team, might be the right move.
Background - While many expect a BD professional to have a background in investment banking or on the investment side in PE, the reality is the landscape is far more diverse. The function includes a significant number of former equity research, software sales, institutional sales, marketing, IR, buy-side advisory, etc. Many of the recent junior BD hires in the industry have come out of expert networks, or some of the BD related prospecting tools / companies.?
My aim, as always with the content I share here, is to peel back some of the layers of BD roles in PE, providing insights for those considering building a BD team or pursuing a role in this space.
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