Investment Banking

Improving Your Investment Banking Deal Flow

Last Updated:
October 12, 2023

Deal flow is the lifeblood of private investing and finance professionals. As an investment banker, you work day and night to create client partnerships and provide deal flow to investors. But, if you spend most of your time in private placements, you’re referring deals to venture capital firms and angel investors.

On the other hand, if you’re mainly focused on mergers and acquisitions, you’re probably most connected to private equity and real estate funds or corporate development teams, depending on your industry specialization.

Across these specializations, one thing is for sure – the market has never been more competitive. Companies posting record profits and a low-interest environment create a high demand for investment banking services, including mergers and acquisition deals, IPOs, and both buy-side and sell-side transactions, naturally leading to higher competition in the capital markets.

To stand out among the myriad of boutique and bulge bracket banks, the most valuable differentiator you can bring to the table is the quality of your deal flow.

How to Increase Your Deal Flow

There is no ‘template’ for generating amazing deal flow in all situations. Furthermore, there’s no “right” amount of deal flow. It’s all relative.

What’s great for your firm might be poor for another banker. Since the quality of your deals is crucial, you can’t necessarily improve investment banking deal flow by just adding more deals to the funnel. You want more good deals that fit your service offering.

However, you can likely improve both the quality and quantity deal flow with the help of the following:

  • A strong relationship network curated with the right referral sources, buyers, and clients
  • Efficient planning to target the right set of business development activities
  • The right technology to maximize the first two and identify opportunities to amplify them.

Want to dive into these strategies in more detail? Read on!

Make Referrals Priority #1

Investment banking is a trust-based industry. Most entrepreneurs aren’t experiencing multiple mergers or sell-side processes in their career, so they are unlikely to entrust the most important transaction they’ll experience to someone they have no connection to.

From your perspective, a strong network can only fill your pipeline with deals if you know how to best leverage it. To get the most value from your network, you must be assertive and actively pursue opportunities, for example, by using 4Degrees to reach out to contacts who can make warm introductions and referrals.

Your customers are valuable sources of referrals. They probably know similar companies who could use your services, especially if they have had a pleasant experience working with you.

You should also look for referrals from service providers or complementary services, such as other banks, lawyers, accountants, consultants, and other professionals. These parties are aware of potential opportunities where your firm can add value. Therefore, you must devote energy to networking with professionals who work directly with your clients.

For instance, an attorney has a client who wants to consult an expert on sell-side M&A. You want that attorney to come to you with the opportunity so you can reach out to the client and offer your help.

Investors can also be great referral sources. Private equity investors, venture capitalists, and other investors may have portfolio companies that aren’t on track to do an initial public offering (and if they are, you should offer them your underwriting services!). Those companies will likely pursue M&A deals at some point in their trajectory.

Finally, an often-overlooked source of referrals is other investment bankers that focus on other areas. Instead of viewing all other investment banks as competitors, look for ways to work together to keep everyone’s deal pipeline full.

To make the most of your time, you can be data-driven in your approach. Using software to determine where your best referrals have come from historically allows you to double down in the right places and know where best to deploy your resources. If you are still relying on Excel to track your network and referrals, you are not being very efficient.

Leverage Relationship Intelligence Technology

Brian Trauth of The Capital Corporation explains, “15-20 years ago, whoever had the biggest network was the best bank. Today, it is more about your tools than your existing network — you can find relationships you never had before.” The right tools can make small networks exceedingly valuable and keep big networks organized.

Having the right relationship intelligence tools and processes in place will make a material difference in your firm’s deal-sourcing and deal-making capabilities. As previously mentioned, networking is one of the most critical deal-sourcing pillars; with the right CRM technology, you can significantly amplify your networking efforts.

However, a traditional or transactional Customer Relationship Management (CRM) platform isn’t suitable for investment banking. Most CRMs are intended for companies that follow traditional sales processes, which differs from deal-driven teams like investment banks or private equity firms.

By using 4Degrees– a relationship intelligence CRM designed from the ground up for investment bankers and other deal teams; your firm can:

  • Drive business development by discovering funding events, news, and other intelligence to engage with deal sources at the right time. For example, is your colleague connected to a middle-market CFO looking to sell his firm? With 4Degrees, you can access that crucial intel to request a warm introduction.
  • Track and streamline your transaction process by having a centralized detailed view of all the deals in your pipeline.
  • Make your network work for you by identifying potential buyers, keeping in touch with deal flow sources, and mining your team’s network for introduction opportunities.
  • Save hundreds of hours spent on data entry by enriching contacts and companies with high-quality third-party data.

Frankly, your relationship management technology should be the foundation of your deal flow strategy. Without careful management of your contacts and deals, you’ll struggle to find the best opportunities and keep your deals organized—two pivotal elements when looking to improve your firm’s deal flow.

Grow Your Industry Presence

Winning new clients requires they know about you first – and while doing great work for your clients is a part of the story, it certainly isn’t all of it. You and your team have to work to ensure your ideal clients know the services your bank provides and how those services create value.

Managing directors and other senior members at the firm should focus on business development. Investment banking is a relationship business, and relationships need to be nurtured. You need to be known to increase your discoverability, and building relationships is a fundamental component to generating high-quality inbound business.

Leveraging digital marketing and social media channels like Linkedin or Twitter or being invited to podcasts can raise your firm’s profile. We’ve written an article on building a great investment banking marketing strategy if you want to learn more.

Build Your Team’s Event Coverage Strategy

Meeting people in person is one of the most effective ways to build strong relationships. A handshake or a shared meal establishes a sense of camaraderie you can’t create over Zoom.

But when it comes to attending events to improve your deal flow, you want to target those that target your prospective customers, not just the ones for other bankers like yourself.

For instance, let’s say you’re an investment banker that helps finance film production companies. A convention with other bankers won’t fill your pipeline with deals. Instead, it would be best to embed yourself within the entertainment industry by attending events for movie producers, studio executives, and other industry players; after all, the goal is to meet your customers, not network with other bankers.

Create a schedule for any events you’d like to attend. Some events require early registration, so we suggest mapping out your entire year months in advance. The same people and companies participate in many conferences, so you’ll see many familiar faces once you become a fixture in the industry. Building a solid network can be time-consuming, but it is well worth it in the long run.

During an event, the goal is not to walk away with an endless list of prospects to fill up your pipeline but to get to know more companies and executives that can make introductions and call you when they need your firm’s services.

Establish a Clear Business Development Process

High-quality deals can be complex, and without the proper processes, you will not have the capacity and bandwidth to evaluate as many as you would like. For example, investment banks can learn from venture capital firms that engage with hundreds of entrepreneurs, evaluate a few hundred startups, and fund only a handful.

Your internal process will vary based on the scope of services your firm offers, preferences, and the types of customers you typically work with; most middle-market banks focused on sell-side M&A deals will follow a process similar to this one:

  • Sourcing – This is where you hunt a broad collection of potential opportunities by leveraging your firm’s network and building an investment banking marketing strategy. At a high level, you can categorize sourcing efforts as outbound or inbound, and having the right technology can be a crucial differentiator for high-quality deal origination.
  • Screening + Due Diligence – Next, you’ll want to make sure your potential client is the right fit for your services and operating model. At this stage, your team might look into the company’s financials, develop valuation and cash flow models and take the time to understand the business better. Should this go well, you’ll seal the deal and move forward.

After you’ve completed this, you’ll start to work on executing the transaction, including:

  • Transaction Preparation – Helping the seller uncover opportunities to enhance their company’s value before showcasing the opportunity to potential acquirers (e.g., corporate development departments, private equity funds). This includes preparing the data room, creating teasers and CIMs, constructing the detailed financial model, and identifying the target list of buyers.
  • Showcasing – Sending marketing materials about the investment opportunity to the target list of buyers and financiers and managing the process (from NDA execution to closing).

Although these steps might seem straightforward, the workload involved will vary depending on the particulars of each deal. However, if your firm has an organized process of evaluating deals and guiding them through the business development and transaction process – you’ll be able to drive more deals more quickly.

Keep Your Pipeline Full

There is a direct correlation between your network, deal flow, and revenues.

By knowing how to work your network to increase the amount and quality of deals that cross your desk, you can grow your business and become a competitive player in the investment banking space.

To learn how relationship intelligence can help you get there, click here to request a demo of 4Degrees- The CRM built by investors for investors.

Meet The CRM Built For Deal Teams.

4Degrees is tailored for the sourcing, relationship, and pipeline activities that drive your business.
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