"[LPs] get pitched by new and existing funds all the time, so they have the pick of the litter as to ... how they deploy capital. With how many funds there are now, you have to have a differentiated or value-added approach,” reveals Sean Kelly, VP of Business Development at Insignia Capital Group. In a ten-year-anniversary edition of Inside the Source, Sean joins us as one of Sourcescrub’s first customers for a conversation with co-founder Tyler Fair to talk about industry changes over the last decade, and what it takes to stand out to LPs and investors when raising the next fund.
Sean dives into how much the business development function has expanded over the years and how essential it is for direct sourcing. In today’s fast-paced market, high-quality private company data is more accessible, meaning intermediated deal flow isn’t the only option. He shares, “Across the industry — especially for the BD role and function — it's become a more efficient, streamlined, and targeted process. Especially in a market that's gotten more and more competitive, you need to have a differentiated way to reach out to companies but also supplement your deal flow rather than just relying on intermediated deal process with investment banks.”
Data and technology are cornerstones in how Sean and his teams source opportunities, fundraise, and connect with targets. From relying on key data signals like growth signals and top lists to incorporating more AI-powered tools to enhance personalizing outreach, Sean highlights the keys to a differentiated business development strategy that wins over investors. Watch the full video to learn more.
Transcription:
Sourcescrub: How has sourcing evolved over the last ten years?
Sean Kelly (SK): I think really the business development function has evolved. And I think just as you're seeing new funds pop up almost every other week, there is a bigger and bigger need to differentiate yourself. When it comes to sourcing new investment opportunities, thesis development work, and not just relying on intermediated deal flow. Every year we launch new proactive investment themes and theses, and it really starts with, you know, idea generation.
But then how do we find the most attractive targets in a certain market? You know, flesh out a thesis to determine if it's an area that we want to pursue and Sourcescrub is really the starting point for all of that and identifying targets. Ten years ago, you know, we'd have interns that would, at Serent, that would, scrub lists for us.
And by the time they got ramped up and trained on how do you, you know, identify employee count, like tracking down, you know, contact information, email addresses. You know, by the time they got ramped up, they would they would take off and we would spend, you know, a day or two ourselves and going through lists and, you know, not understanding whether a conference was worth attending or not.
And so I think for us and other firms, you now can, you know, take more of a rifle shot approach versus just a spray and pray reaching out to every company underneath the sun and, take a more targeted approach to the sourcing opportunities, finding the 50 companies that are attending a conference that are worth reaching out to, or maybe they're not worth reaching out to at all.
So I think it's helped us take a more efficient approach to figuring out whether we should attend conferences. You know, we're saving time and money by not flying out to Orlando to go to an event if there is only one company out of 800 that are worth it for us to try to reach out to. And so I think, you see that across the industry or especially for the BD role and function, where, you know, it's become, a more efficient and streamlined and targeted process, and especially in a market that's gotten more and more competitive, you need to have a differentiated way to reach out to companies, but also supplement your deal flow rather than just relying on intermediated deal process with investment banks.
Sourcescrub: What data signals do you look for when determining the quality of a lead?
SK: There's a lot of different variables as to how we can figure out which company is more or less interesting or checks all the boxes for us like employee count. One of the first things that I look at when I'm going through a list, and this is top of mind, something that I was literally doing yesterday is looking at employee count growth trends over the years, figuring out, or over the last couple of years, figuring out, you know, which companies, you know, maybe are performing well, from the Inc. 5000 list.
And, you know, being able to leverage that to find those, you know, 50 that are worth reaching out to. But then as far as the outreach process, it allows you to like, again, not taking this spray and pray approach, but you can take a more tailored or targeted approach to leveraging information that's on Sourcescrub with the recent news or announcements for each of these companies and where they are on the Inc. 5000 list, and being able to take that and take a customized or tailored approach when reaching out to these companies. I think you know, other we and other funds are starting to, you know, take a more targeted approach and leverage that data to be able to do that.
Sourcescrub: What new tech are you looking to add to your tech stack?
SK: AI is top of mind for everyone or has been for the last year, maybe two years in particular. And when we first started, I mean, COVID was a big driver for us in, really ramping up our proprietary sourcing efforts. You know, intermediated deal flow kind of came to a halt first half of 2020 in particular. At that point, you know, we had a database of maybe 300 companies that we had added, you know, from Sourcescrub.
And as that has grown, we've now got, you know, maybe it's 5000 companies, roughly. And, you know, keeping track of those businesses over time are the ones that we want to prioritize, and not let slip through the cracks. And also, the coverage has expanded across different themes that we're pursuing. And we want to make sure that we're, you know, staying on top of each of these businesses.
And reaching out and trying to have conversations and so finding ways that we can I mentioned before taking more tailored, customized approach, the message that we're sending to CEOs, founders in our emails. And so, you know, maybe it's leveraging AI to come up with that more tailored or customized email. You know, well, one thing that we do and the templates that we use is there's a sentence or two that we’ll, or a few sentences, that we'll edit that's kind of more specific to each company.
So they know they're not getting a boilerplate, you know, cut and paste email template from everyone because these companies are getting reached out to all the time. And so if there's a way to leverage AI to kind of customize that, that message, you know, based on what's available on a website, calling out their specific service offerings, capabilities, customers, customer levels, things like that.
I think that would be helpful. I don't think we've even scratched the surface in leveraging ChatGPT or other tools that are out there, AI tools that are out there. And it's something, that is certainly top of mind for us this year. And, and I think a way to like, at least for me, and I think about the daily workflow and how I can, you know, just optimize my time would be to leverage something like this to reach out to more companies and have that tailored email without me spending 10-15 minutes for each one.
Sourcescrub: When have you seen personalized outreach make a difference in closing a deal?
SK: More of these companies and founders have said this to us, too. I get these emails all the time, and I've also we've had several dozens, hundreds of comments over the years that say your message, this email or message was differentiated from all the rest. So I'm not surprised to hear, you know, conversations you've had with competitors that I mean, it's just copy-paste all these emails.
Founders get it all the time. So having a differentiated or customized sort of message to folks, has worked out well. In 2020, deal flow came to a halt for investment banks when COVID hit. You know, so basically the first half of the year that things slowed down. And so we kind of kicked off this proactive thesis because we invest in business services companies, consumer product companies.
And then how could we find something that was sort of at the intersection of that where, you know, whether it's a market research and insights or, you know, retail brokerage or outsourced sales and marketing agency that was focused on the consumer products of retail end markets, where we could leverage just all of our experience in the consumer space, but also our experience and services, and be able to make introductions.
But also, you know, for our food companies, we could leverage these types of services and help them grow or expand into other channels, etc.. So we kicked off this thesis and, you know, the probably end of Q1 and 2020 started going through the list, went down the rabbit hole, you know, found five companies that were interesting and then was able to find on Sourcescrub all the other lists that they were on.
And then, you know, ended up building out a pretty robust set of targets. And I remember it vividly, because I was working from my apartment in the city at the time. And, you know, it's in the depths of, of COVID, but sent a really tailored email, to the founder of this business. And had, like I mentioned earlier, the 1 or 2 customized sentences, you know, put together like two paragraphs on, you know, why, you know, we, are a differentiated investor and, what we could do to add value, you know, our experience services and consumer products and, you know, got a response the next day.
You know, this company checked all the boxes just as far as service offerings. You know, they were like consulting, sales and marketing consulting, retail brokerage, working with, you know, some of the largest brands and retailers in the world. And, you know, again, checked all those boxes, reached out, got a response, and, you know, had an initial call, went well, and I looped in one of our managing partners, Tony Braulio, for our second conversation.
Also went well. We knew, you know, based on those two conversations, that they were going to hire an investment bank they already had. And were going to run a process later in the year. And so that happened. They ran a process. We ended up closing the deal a couple of weeks after we closed. And this is a new platform as it wasn't it wasn't an add-on guy that I reached out to initially.
One of the founding partners, you know, was like, you know, do you have time to catch up and thanked me for having reached out and said the fact that you guys had reached out had a proactive thesis in the space and had a good conversation with you and Tony. You know, that really give you guys a leg up or differentiated you in the sale process.
And, you know, because that tie goes to the runners. We were at the same level for from a valuation standpoint. You know, the fact that we had all of those things, our prior interactions, you know, really got us across the finish line there. And on that call, he pulled up the initial email that I had sent him nine months prior.
They get pitched by so many new time funds or existing funds all the time, so they really have the pick of the litter as to who they can deploy or how they deploy capital. And so with how many funds there are out there now, you have to have a differentiated or value-added approach. And I think for us to have the case studies that we do with our existing portfolio companies, I mean, any fund can go out and do M&A for an existing platform, but it's what can you do, you know, to kind of roll up your sleeves and get more involved.
And so we have to we take a more operationally focused approach, especially, I guess, particularly with our, consumer products companies. We have two of our founding partners who were operators before they ever went into the private equity world. They've held, you know, the CEO title for a couple of our food companies. And sometimes we'll end up investing in businesses that other firms will shy away from just because, you know, there's not a CEO coming with the business.
There's, you know, these they don't have an ERP system. There's always doing all these things that we have in our playbook that we can do to add value. Sometimes it takes a little bit longer for it, to play out over time. You know, you kind of have to execute on all these different initiatives. And so some of those investments that we've made in the food space have taken longer to, you know, for those initiatives to materialize or to actually bear fruit, no pun intended, for our food companies.
But in, in seeing that that's that was, I guess, the challenge for us in fundraising for funds too because we just hadn't realized some of those investments. And so I think having a more operationally focused approach beyond just writing a check and now having the wins on the board to be able to prove that that model, works or is differentiated from other funds out there, I think has really helped, you know, it's a relationship thing too with the LPs that have invested in us and, you know, over time, as we continue to work with them, you know, we'll continue to gain their trust, hopefully be able to have, you know, raise more and maybe larger funds over time.
Sourcescrub: What role do the platforms in your tech stack play in how you differentiate?
SK: Every year I present at our annual LP or investor meeting and yeah, there's five slides. For the last five years I have mentioned Sourcescrub and how that has helped us supplement deal flow and especially the peaks and valleys that we've had, in the market over the last couple of years. And, you know, even for fundraising meetings for funds too.
I mean, it was something that came up because they do, and this probably wasn't the case ten years ago when folks would go out to fundraise, a lot less people had a dedicated business development professional. They were only relying on, banked deal flow. And now almost every other fundraising meeting, you know, they want to speak with business development professionals to know how their sourcing strategy is different versus, you know, taking a more proactive versus reactive approach.
Yeah, I mean, I promote the hell out of Sourcescrub with all of those conversations. And it's, you know, it is something that, you know, allows us to tell a different story from what other funds are out there doing.
