Why Your Deal Sourcing Is Broken (And How to Fix It)

If you are a PE professional or search fund entrepreneur, chances are you spend more time looking for deals than doing deals. That is backwards. But it is not your fault — the entire deal sourcing infrastructure for the lower mid-market is fundamentally broken.

The Five Broken Pillars

1. Brokers Are Not Sourcing. When a deal comes to you through a broker, 50+ other buyers see it simultaneously. You are not sourcing. You are competing. The broker's job is to maximize seller proceeds, which means maximizing buyer competition. Your interests and the broker's interests are structurally misaligned.

2. Databases Are Stale. PitchBook, Grata, SourceScrub — these are valuable tools, but they are databases, not sourcing engines. They can tell you what companies exist. They cannot tell you which owners are thinking about selling, which businesses are acquisition-ready, or which opportunities match your specific thesis today.

3. Conferences Are Random. Industry events are great for relationship building, but "walking the floor and hoping to meet a seller" is not a repeatable sourcing strategy. The ROI on conference attendance, measured in deals sourced, is abysmal for most firms.

4. Cold Outreach Is Unsustainable. Direct outreach to business owners works, but it is incredibly labor-intensive. A dedicated sourcing analyst can contact maybe 30-50 owners per week with any quality. At that rate, covering a meaningful target universe takes years.

5. CRM Discipline Is Nonexistent. Most PE firms track their sourcing pipeline in spreadsheets, if they track it at all. Contacts fall through cracks. Follow-ups are missed. Owners who said "call me in 6 months" are forgotten in 8 weeks.

The Fix

Automate the Mechanical Work. Identifying companies, cross-referencing data sources, verifying ownership, estimating financials, scoring thesis fit — all of this is systematic, repeatable work that AI agents handle better than humans. Free your deal team from spreadsheet building.

Systematize the Pipeline. Treat sourcing like a sales pipeline. Track every target through stages: identified, qualified, contacted, engaged, evaluating, LOI. Measure conversion rates at every stage. Identify bottlenecks.

Invest in Continuous Sourcing. Sourcing is not a sprint before each acquisition. It is a marathon that runs parallel to everything else. The best firms have a pipeline that produces qualified targets every week, regardless of whether they are actively acquiring.

Separate Sourcing from Deal Execution. The person screening companies should not be the same person negotiating LOIs. These are different skills requiring different mindsets. Sourcing requires volume and pattern recognition. Deal execution requires depth and relationship management.

Measure What Matters. Track these metrics monthly:

• Targets identified vs. qualified (your screening yield)
• Qualified targets vs. contacted (your outreach coverage)
• Contacted vs. engaged (your messaging effectiveness)
• Engaged vs. LOI (your deal qualification)
• LOI vs. close (your execution rate)

The Math on Broken Sourcing

If your deal team spends 60% of their time sourcing and 40% executing:

• 4-person team = 2.4 FTEs on sourcing, 1.6 FTEs on execution
• At $200K average comp per team member = $480K/year on sourcing labor
• Add data subscriptions: $50K-$100K/year
• Total sourcing cost: $530K-$580K/year
• Deals sourced: 2-4 per year (typical for lower mid-market PE)
• Cost per deal sourced: $133K-$290K

Now compare:

• Ted: $36K-$90K/year (depending on plan)
• Deal team fully allocated to execution: 4 FTEs on evaluation, negotiation, and closing
• Deals evaluated: 3-5x more per year (because the pipeline is full and the team is focused)
• Cost per deal sourced: dramatically lower

The math is not close.