Deal Sourcing
Deal sourcing is the process of originating and accessing investment opportunities through networks, outreach, and proprietary channels.
Allocator relevance: A primary driver of differentiated access and the quality of the opportunity set available to a manager.
Expanded Definition
Sourcing is the front end of the investment process: where opportunities come from and why a manager sees them. Proprietary sourcing can create access to better pricing, earlier entry, or less competitive processes. Weak sourcing can lead to “auction deals” where returns depend more on leverage and market conditions than edge.
In allocator evaluation, sourcing quality is tested by evidence: repeatable origin channels, reference checks, and a track record that supports the claimed edge.
How It Works in Practice
Managers source through founder networks, intermediaries, industry relationships, inbound interest, and thematic research. They may run systematic outreach or rely on relationships. The key is whether sourcing produces opportunities that fit the mandate and lead to high-quality underwriting.
Decision Authority and Governance
Governance ensures sourcing activity aligns with mandate constraints and that conflicts (e.g., referral incentives, affiliated intermediaries) are disclosed and managed. Strong sourcing also requires discipline to avoid “opportunity drift.”
Common Misconceptions
- Sourcing equals deal flow volume.
- Proprietary sourcing can’t be validated.
- Strong sourcing removes the need for underwriting rigor.
Key Takeaways
- Sourcing determines access; underwriting determines outcomes.
- Proprietary channels can improve pricing and selectivity.
- Evidence and repeatability matter more than claims.