Healthcare and life sciences is a booming market, as the industry is forecasted to grow from a market size of $1.8 billion this year to $4.3 billion by 2026.
With so many growing companies in this space, it’s often cumbersome for private equity (PE) firms to identify the right targets. A leading PE firm, which invests into rapidly growing healthcare companies, recently faced this challenge. Without an array of advanced sourcing tools in the marketplace, the firm largely had to partially rely on manual processes for proprietary deal sourcing. However, this wasn’t the most efficient approach for identifying potential portfolio companies and building its deal pipeline.
To tackle this challenge, the firm decided to onboard a new solution: Grata, a B2B private company intelligence engine. WithGrata, the firm has optimized its deal sourcing process and significantly increased its universe of investable companies in the rapidly growing healthcare market.
Grappling with Manual Deal Sourcing Processes
Because they focus on a niche market, employing an efficient and optimized sourcing strategy is critical to accelerating its deal flow. The firm’s vice president says most of the current sourcing tools available to PE firms only lead to more manual work.
“At my prior firm, the only tool we used was LinkedIn. Based on our workflows, it required a lot of manual work to identify companies where head count might be growing rapidly,” he says. “We were working with disjointed data sources to better understand how to reach out to these folks, how much capital they've raised, and what some of the growth signals were around headcount and hiring.”
The firm’s vice president says his team also would scrub conference lists to identify potential leads, but employing undifferentiated events-based sourcing just meant the team wasn’t targeting unique leads. The firm eventually adopted a deal tracking and origination software solution to automate parts of this process. When this vice president helped start the PE firm, he implemented this solution and his team adopted similar sourcing processes. However, this approach still added more complexity and time to the team’s work.
For one, this solution didn’t offer as large a database of potential companies or the ability to identify look-a-like companies that resembled those in the firm’s target industries. It also didn’t have a robust search function. The PE firm tried to round out its sourcing strategy by using tools to look at headcount over time at potential target companies and uncover other growth signals, but this approach also led to inefficiencies.
“The issue is that it’s manual,” added an associate at the firm. “Instead of seeing a list of companies and being able to filter by certain parameters, you have to screen company by company. It takes hours to go through 50 companies and hope to come up with three that fit our criteria.”
The sourcing tools the firm used also were expensive relative to the value provided, and in the case of the other origination software solution, the firm dealt with vendor lock-in. These tools also reduced the time the firm could spend on outreach and nurturing relationships with healthcare companies, potentially slowing down its deal flow.
After learning about Grata from an acquaintance in the PE industry, the firm’s vice president says they decided to demo the product. The feedback was overwhelmingly positive, so the firm implemented Grata — which was more cost-effective — as its main deal sourcing solution to unearth potential targets more quickly.
Discovering New Investment Opportunities in Healthcare
Grata provides several sourcing automation capabilities that have allowed this PE firm to scale its sourcing process.
On average, PE firms only see 18% of deals that might be relevant to them. However, Grata offers a larger breadth of companies (over 6million in total) than most industry databases, including coverage of hard-to-find companies in the small business and mid-market space. Grata also has market mapping tools that allow PE firms to better understand and visualize the competitive landscape within their target sectors — without having to manually pull, aggregate, and analyze data from disparate sources.
“The universe of companies and the database was three times as large as the previous sourcing solution,” the firm’s vice president says of his team’s initial demo with Grata. “There is value in being able to use the ‘similar companies’ function to identify other competitors that we may be looking at. The overall UI and UX and the search engine capabilities all were differentiators.”
Grata provides more expansive search capabilities through its AI-driven search engine, which culls information from diverse data sources such as company websites, announcements, and news coverage. These capabilities allow the firm to run more granular and advanced searches based on attributes like a target company’s business model, capital raise, or headcount growth — information the firm would’ve had to manually piece together with its previous tools.
With Grata, PE firms also can access signal-based nurturing capabilities that allow them to stay on top of changes happening within target companies. This information can include growth and liquidity signals, such as new investors, a prominent board appointment or an influx of executive hires.
Grata adds value during the outreach and nurture processes, as well. The solution has over 1 million verified emails for executive contacts for CEOs, founders, and other leadership team members thatPE firms can integrate into their CRM. Firms also can create customized business development campaigns to cultivate more high-touch, personalized interactions with potential targets.
Grata not only offers advanced functionality that is currently missing from the PE tech landscape, its team also takes steps to ensure firms get as much value from their investment as possible with an easy implementation process, training, and ongoing support.
“The implementation was super easy. The training was also top notch,” says the PE firm’s vice president. “At prior firms, the training wasn't particularly strong, and as such, we probably weren't getting as much out of the platform as we could, which isn't the case here. We never really ran into any sort of issues. In terms of making sure we were in a position to succeed, the Grata team is great.”
Building a Better Deal Pipeline with Grata
By using Grata, the firm can more quickly eliminate companies that may not be the right fit or align with its investment criteria.
Along with identifying high-priority targets, they have been able to find additional niche markets within the healthcare industry, such as electronic medical record companies, and identify more targets within this sector. This may enable the firm to be a first mover in these markets and position itself well for future growth.
Manual work has become nearly obsolete within the firm. The firm’s associate says he no longer has to run manual searches and can easily do more automated granular searches, pulling information directly from Grata into Excel for further analysis. He adds that he now spends less than a third of his work day on these tasks compared to when his team primarily relied on LinkedIn and other manual sourcing processes.
All in, this premier PE firm estimates its associates now spend 80% less time sourcing deals.
“An 80% reduction in time, if you calculate that, means we save three hours a day, five days a week. That's 15 hours a week,” says the firm’s VP.
If you were to quantify this time savings for PE firms based on the average associate’s salary, it would amount to a cost savings of more than $30,000 annually per associate.
Along with these potential savings, the firm reaps other incalculable benefits by using Grata. There’s a downstream effect in that the firm’s associates and the team members they support now can allocate more time to outreach, nurturing, and other business activities that fill their funnel with relevant investment opportunities and get the firm closer to finalizing deals.
“We like to think we’re pretty good at our jobs. We know where we want to spend our time, but Grata just saves us so much time and enables us to be more efficient and targeted,” says the firm’s VP. “In an industry where we're literally talking to thousands of companies every year —and our universe of investable companies is likely in the tens, if not hundreds of thousands — anything that can move the needle counts. From my seat, that is an unbelievable value proposition.”
