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Private Equity

Tips for Building a Business Development Function from Scratch


Establishing a dedicated business development function is a fairly new idea for many capital providers. Rich Prestegaard, Business Development Partner at High Road Capital, estimates that in 2007, 30 firms in the lower middle market had a BD professional. Now, he projects that number over 250.

Lauren Glazebrook, who heads up business development at Tregaron Capital, was the first dedicated BD professional at the firm. “When there’s never before been a business development role within a firm, one of the first, and most important things to address is how to best align the BD professional’s metrics with the outcomes most important to the firm,” she says.

Streamlining Expectations

It’s easy to judge success, and determine compensation, based on the number of deals the BD professional brings in that ultimately close. Indeed, the goal of BD is to increase the top of the funnel, thereby increasing the probability of a closed deal. But, says Glazebrook, “there are so many external factors that affect whether or not a deal closes. Often, it has little reflection on how well the BD professional has been doing his or her job.”

Glazebrook says it’s crucial to make sure others at the firm understand “how your processes and activity contribute to the end goal — a closed deal,” and tie at least partial compensation to top-of-the-funnel metrics rather than solely closed deals. Metrics might include qualified deals generated or new intermediary relationships established.

It’s also key to provide transparency into the rationale behind BD efforts. “It’s dangerous to become complacent and rely on a stagnant group of relationships for deal flow,” says Glazebrook. “Some intermediaries will have slow years, shift focus, or go out of business. Our success can’t exclusively be dependent on historically fruitful relationships. A big part of my job is to identify and meet with intermediaries we’ve never come across before. You’re looking for areas of opportunity and ways to increase the likelihood of additional closed transactions.”

Volume and Quality

Most BD professionals would agree with the need to have a centralized location to track dealflow and contacts. But building and maintaining a centralized database at an investment firm without a formalized BD process can be challenging at first. Partners may be used to keeping information about their relationships in their head, and may have trouble seeing the need to log everything in a CRM. For Glazebrook, the first few months on the job entailed cleaning up existing data and instituting clear processes around tracking new relationships and deals.

Starting a database of contacts is a key first step to building out the top of the funnel, says High Road Capital’s Prestegaard. He points to conferences and online platforms like Axial as two of the first places to look. “We put everything in Salesforce.”

“There are two sides of the equation,” says Prestegaard. Every day, he thinks about two things: “how we increase the volume of qualified deals and how we improve the quality of what’s going through our pipeline, such that we have deals we want to close.”

Prestegaard’s team closely analyzes what percentage of deals are moving down the funnel from initial qualification to indications of interest. Of the initial deals that meet High Road’s criteria, he estimates that about a third move to the “books” stage — e.g., signing an NDA or reading a CIM. About 20% of those deals will convert to indications of interest.

“Once you have the database, you have to take a disciplined approach to how you reach those people,” he says. Having a differentiated brand with a consistent message, working hard with a disciplined approach, and creating strong human relationships are important components of successful outreach.

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