The private equity world has become significantly more competitive, with more capital being raised, more transactions occurring (record deal volume in 2018), rising deal values, and more private equity firms vying for deals than a decade ago.
To differentiate—and succeed—firms have to be more creative than in the past when it comes to identifying attractive companies to invest in. Naturally, deal-sourcing ability has become a vital differentiator for private equity firms in an increasingly competitive market.
Traditionally, private equity firms have pushed business development responsibilities to their Vice Presidents and Principals as a means of differentiating those who have the potential to become Partners in the organization. However there has been a trend over the last five years to hire dedicated business development professionals and private equity firms of all sizes have been making increasing use of such professionals.
The primary value-adding activities dedicated business development professionals can perform for the private equity firms that hire them include:
Taking a strategic, thoughtful, approach to hiring a dedicated business development professional is critical. First and foremost, it is important to establish what the ideal use-case for the hire will be – some private equity firms are looking to simply build out the ability to meticulously track their pipeline while others are looking to hire a professional who can actively hunt for deals and be in the marketplace as a point of contact. The short-term and long-term job responsibilities for the role should be clear before you initiate a search process to ensure you are targeting the right candidates.
It’s also important to implement the appropriate compensation structure for business development professionals. Salary, commission, carry and bonus targets are all utilized in some combination depending on the candidate’s capabilities, network, tenure and expertise. Business development professionals have a higher variance on their all-in compensation relative to investment professionals and there are multiple ways to structure compensation given the nature of role.
GoBuyside has helped private equity firms hire business development Managing Directors, Principals, Vice Presidents and Associates across the globe. As the private equity world continues to becomes more competitive, it makes economic sense to invest in institutional business development processes that allow for repeatable success.
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