Getting Started with Growth Equity Sourcing and Cold Calls

Introduction

The “cold call” or “sourcing” case study is a critical yet challenging part of interviewing for growth equity and venture capital roles. When I started as an investor at General Atlantic, I had no previous experience with sourcing or cold calling; however, by the end, I came to enjoy them and they were a core part of my job.

In this article, I’ll share advice on how to get started with cold calling and sourcing in growth equity or venture capital. Cold calling and sourcing can also be key areas of growth equity and venture capital interviews, so I’ll share how you should approach formal case studies and interview questions in this area. With a little preparation, you can truly stand out in this area – both on the job and in interviews.

What is sourcing

If you are tasked with “sourcing,” tactically it means you will be finding companies and cold calling or emailing them. The purpose of this outreach is to introduce your firm and to learn about the company – in the best, learning enough to determine whether it’d be worthwhile to pursue the company further.

In many cases, “sourcing” can be very strategic as well. It can include developing entire investment themes for your firm. This means studying an attractive industry and identifying the business models or sub-sectors within it that are most attractive for investment.

Successfully developing an investment theme for your firm can be one of the highest leverage ways you can have impact as an investment leader, especially if you are able to convince other investment professionals to dedicate time to finding investment targets in it. You become known as a thought leader within the firm, and you shape the firm’s investments, potentially for years to come.

Who does sourcing

While investment professionals of every seniority contribute to sourcing within a firm, it’s typical that firms utilize junior investment professionals to do the lion’s share of frontline sourcing activities. This means that pre-MBAs and post-undergrads often develop lists of companies and do cold calls or emails to targets. Once a lead has been “qualified,” often a more senior member of the team (VP or higher) may take over the relationship and outreach with the investment target.

Why is sourcing important

Within growth equity and venture capital firms, the quality of your investments can only ever be as good as the quality of the investment targets you evaluate. Therefore, it’s of utmost importance to the firm’s success that it is identifying and building relationships with the highest quality companies through its sourcing program.

Especially given how competitive the growth asset class has become, it’s especially important that firms proactively find companies, rather than waiting to evaluate potential investments through inbound sell-side processes from bankers.

What most people get wrong about sourcing

I feel obliged to put in a rare good word for sourcing, since I feel it usually gets a bad wrap. Many candidates get scared away from firms that have the reputation for being too “sourcing heavy.” However, while I was an investor at General Atlantic, it was actually one of the most positive aspects of my experience.

I’ll explain. While all-day cold calling wouldn’t be fun for anyone – even to me – sourcing and cold calling for some portion of your day has a few main upsides I feel people ignore:

• Chance to learn sales skills – by doing cold calling, I learned invaluable sales skills that will last a lifetime. While it was super scary at first to call a company, I started to learn to be okay hearing “no” and I got really good on the phone! As I’ve discussed previously, nearly all investment jobs turns into sales the more senior you get (i.e. selling yourself and your firm as a partner to prospects), and this is great training to start learning these skills at a young age
• Chance to interact with senior management – as a junior professional, the reality is I knew I would not be “leading” a deal investment process for some time. Cold calling, sourcing, and prospecting activities offered a rare chance for me interact with management during this time without filters and often without any “supervision” from more senior investors. When you take a step back, it’s pretty awesome that in this role you are empowered to go out and build relationships with great management teams. Don’t waste this valuable experience!

What to expect in growth equity and VC interviews

Ok, now that we have a better idea of what sourcing and cold calling are, let’s talk about interviews. In your growth equity and venture capital interviews, here’s what you can expect:

• Specific interview questions on sourcing
• Mock cold call interview
• Take-home case study to find investment prospects

At a minimum, firms will ask several interview questions that are designed to get a sense of your attitude and willingness toward sourcing, regardless of your seniority level. However, for junior roles that are sourcing-heavy (e.g. analysts out of undergrad, or pre-MBA associate roles), many firms will go even further by asking you to do an entire mock cold call interview or a take-home case study dedicated solely to sourcing.

Here’s how one of my clients described his mock cold call case study experience:

After a recruiter passed my information along, I had a few calls with VPs and a partner, all of whom seemed generally interested in my attitude toward sourcing, whether or not I display an entrepreneurial mindset, and what I believe makes an interesting lead.

For the mock sourcing call itself, I was given a software company name 24 hours ahead of the call. I was instructed to call a VP with the firm and role play that I’m cold calling the company’s CEO. In a span of 10-15 minutes, I was to “sell” the CEO on the firm and gather as much relevant information as possible on the lead. Then I was instructed to call back the VP, walk him through the lead, and convince him to meet with the company’s CEO.

Sourcing interview questions

In this section, I’ll run through the most common questions you can face during a sourcing interview, and I’ll share my thoughts on how to approach them.

What’s your attitude toward sourcing?

Overall, many firms know that sourcing can be a difficult part of the job. You want to come in with the attitude that you know what you’re getting into and you’re actually very excited about this part of the job.

You want to convey that you think sales skills developed during sourcing will serve you for the rest of your career and you’re excited to learn them. Also, you could talk about how you think it’d be a really cool opportunity to be on the “front lines” with CEOs. There are few opportunities in investing firms to have such direct experience with CEOs and leaders of companies at such a young age.

What channels would you use to source company ideas?

First, it’s always important to acknowledge that, while you have several ideas, you’d of course look forward to learning from experienced hires at the firm to understand where they’ve had success finding proprietary ideas here. Finding proprietary deals is always the dream of any private investor, but it’s getting harder all the time so you need to get creative!

Here’s a list of some channels that everyone uses:

• Popular press (e.g. Techcrunch)
• Google searches
• Banker ideas

Note – just because everyone uses them, doesn’t mean you should ignore them, but especially in your interviews, I’d just be sure to acknowledge that you know these alone won’t give you an “edge” as a sourcer.

Here’s some better and more created channels:

• Niche trade publications (e.g. Oil & Gas Journal)
• Trade conferences – attend and/or look at the attendee/exhibitor lists (e.g. Digital Insurance Conference)
• Monitor LinkedIn for status changes on high potential executives and entrepreneurs
• Top company lists – many funds say they look at these, but often they slip through the cracks and forget about them (e.g. Inc 500 Fastest Growing Companies)
• Track top early stage investor portfolios
• Personal connections

How would you prepare for a sourcing cold call?

Just as in real life, I’d prepare for a mock cold call in the following way:

• Research the company – know the industry, rough size estimate (if available – employees, revenue, capital raised)
• Deeper research on promising prospects
• Listen to podcasts that the founder/company executives have done. Not time efficient, but for very promising prospects it can be very helpful
• Be able to talk about your fund’s track record of success in that space; be able to cite the deals that your fund has done in the space
• Call the worst prospects in a certain industry FIRST, then call the better ones after. That way you learn more
• Practice my high level script a few times (especially before high value prospects)

What are you trying to learn in a sourcing cold call, and how will you go about it?

Ultimately, your goal is twofold:

• You’re trying to learn about the company and whether it might be an interesting prospect to invest more time into.
• When in doubt, you’re trying to setup a second interaction (e.g. phone call or live meeting) to learn more

To achieve these goals, you are often trying to learn:

• How large is the company, and how fast is it growing? Ultimately this is assessing whether it might meet your fund’s investment parameters
• Is the company open to raising capital? Are they raising money right now?

Both of these can be quite challenging to surmise without being pushy, especially on the first meeting. The way I’d position your interest in these topics is:

I’m an investor and my firm helps entrepreneurs like you grow faster and expand. If you’re open to it, I’d love to learn a bit more about your business so I can see if we’d be the right fit for you. If we aren’t, perhaps I can refer you to other potential partners who could be a fit for you.

How would you introduce yourself on a sourcing call?

I always recommend keeping this brief. Most often, young sourcing professionals err on the side of talking too much. Usually, this is because they are nervous. It’s okay … I’ve been there too!

However, it’s important to recognize the point of the call is to have a conversation, not a monologue. That’s why I recommend using the following as a “base” format until you get your legs under you:

“Hi, I’m [First Name], I’m following up on the email I sent you on [Day]. It’s okay if you don’t recall, but I’m with [Firm Name]. We manage [X billions or millions] in investment funds, and we invest in great growth companies like yours.”

Pause. Let them speak. Then, you’ll typically follow up with something along the lines of:

You may have heard of us because we invested in [Notable Company Name]. If you have a few minutes, I wanted to call and introduce myself and compare notes on the [Industry Name] space. If it’s helpful, I can also share a bit about how my firm helps companies like yours to grow even faster through investment. Finally, it’s no problem if you aren’t raising money right now, but I wanted to call to make the connection now so we can be helpful when you are.

How would you introduce our firm on a sourcing call?

Sometimes the interviewer will want to hone in on how specifically you would describe or pitch a company to an entrepreneur. As shown above, when you are introducing yourself, typically you’ll introduce the company a bit as well. But if someone wants to go deeper, here are areas I’d be sure to have in your backpocket:

• Firm name
• Roughly how long it’s been around
• Typical investment sizes and deal profile
• Notable investments that are relevant to the prospect
• Firm value-add specialties that could be relevant to the prospect – does your firm specialize in helping with M&A, in expanding to international markets, or in navigating regulatory challenges?

Obviously, these may be difficult things to surmise from a growth equity and venture capital firm’s website alone. It’s actually less important that you know the specifics for each firm you interview with, but rather if you know that these are areas you’d study up on when doing real cold calls then that’ll show very well in an interview.

How would you secure a “follow up” meeting?

After the conversation has progressed a bit, and the company seems worth pursuing, be sure to ask for a follow up. You might say something along the lines of:

Listen, this has been really great getting a brief introduction to your business here today. I’d love to schedule another discussion (with yourself or with my broader team).

Usually it’s best to have some carrot to offer in this follow up conversation. What do you authentically have to offer that might entice the entrepreneur to take another meeting? A few ideas come up for me:

• Introduce you to my broader team – may be of interest if the company is raising money soon
• Compare notes and/or share insights on their industry – perhaps you have a portfolio company that has given your firm greater insight that could help the entrepreneur
• Discuss potential customer intros – these are most valuable to the entrepreneur, but also the most rare; only offer if you truly can provide them

Ultimately, if you have to, you can fall back on, “I’d love to learn more about your fundraising plans, and how we might be able to help.”

If the entrepreneur is steadfast in refusing to spend more time with you (or wishy washy), don’t be too pushy. Your ultimate fallback is to follow up over email to set up another time later.

How would you brief your team after a sourcing call?

After a successful prospecting call, you’ll often be asked to brief your team on the company. Many firms simulate this in interviews by asking you to have a “mock briefing” with a teammate.

The key things they are assessing is your communication ability and conciseness. In terms of content, here are high level things you’ll want to be sure to cover:

• Company name
• Who you spoke with there
• What the business does, how they make money, and what market they’re in (concisely!)
• Why it could be a good fit for the firm (or not)
• Here’s the next step if we want to move forward

What makes a good lead?

Ultimately, in your sourcing you are looking for what will make a good investment. The keys for a good investment are:

• Company – is the business high quality? In particular, is there: (i) a large and growing market; (ii) potential for a high margin business model, (iii) presence of a strong management team.
• Returns – Is there potential for a high return deal? This is the least important to assess in early sourcing efforts, so don’t worry too much in figuring this out in your sourcing activities.
• Fit – Is this a potential fit for your firm? Every firm tends to specialize in different business models, investment size targets, and value creation playbooks.

All of these are hard (or impossible) to figure out in an initial discussion with an investment prospect. However, in your discussion, you can start to tease out parts of these.

For instance, if you are a growth fund that doesn’t use debt to juice returns, then it’s unlikely a company could produce a high return if the company isn’t growing really quickly (15% per year or higher). Another one you can usually get signal on is whether the company fits your firm’s size or stage parameters.

Do you have experience with sourcing?

It’s okay if you don’t have any experience directly; not many people call companies in their spare time! The key here is to be creative about examples that will demonstrate you have grit, some gregariousness, and that it won’t be too difficult for you to jump into it.

If you don’t have direct experience, in your answer just acknowledge that, but then discuss how you have experiences you think are related in the sense that they made you comfortable with talking to strangers, selling, or dealing with failure.

• Have you ever had to cold call for anything?
• Have you sold anything door-to-door?
• Do you have any experience approaching strangers?
• Do you have experience where you had to deal with failure or rejection often?

Experiences from college, high school, or even childhood experiences in clubs, extracurriculars, or sports can be fruitful here.

How would you do sourcing in a new industry?

First, you always want to know the basics about the industry and companies you’ll be calling on. You should at least have some idea about how large the industry is, common business models, how firms make money, who the leading firms are, etc. If you don’t know these, your first step is to figure them out.

Next, let’s acknowledge that you will never know everything about the companies/industries you’ll be calling on. Part of why you are calling is to learn! Therefore you need to get comfortable with not knowing everything.

As you progress in the job you’ll get more comfortable at doing calls with less information, and you’ll get better at assessing whether or not the company/industry is a fit for your firm.

One trick that can be helpful when prospecting in new industries is what I call “laddering.” Essentially what you do is you call less interesting prospects in an industry FIRST before you call the best/most interesting companies in the space. Often you can tell who the leaders are pretty easily, so just order those last in your call sheet. That way by the time you call the best ones, you’ll know more about the space and have more frame of reference to have a solid conversation

What if a prospect asked your rank and position at the firm?

This is simple…tell the truth! You’d say something along the lines of:

I’m a [position] at the fund, and I started here [start date]. Previously, I worked in investment banking at ZYX firm, and studied at [College/MBA]. I help lead our investment efforts in your industry, so I’m excited to connect with you.

What if a prospect said “I get a lot of these calls; I’m not interested”?

This is tough. At the end of the day, you can’t do anything about it if they aren’t interested an hang up. One last ditch way to try to salvage things is to acknowledge that you aren’t surprised that he or she gets lots of the calls given how exciting the business is, but that you are calling because you truly believe your fund could help him and is differentiated because of the experience you’ve had investing in related areas.

What if a secretary won’t let you connect with the CEO?

This is also a tough one, and it happens often. One route is you could ask if it’d be possible to follow up with the CEO via email to describe your firm and your interest in connecting. Another approach is to ask if there’s anyone else within the firm (e.g. CFO, co-founders, etc) that she’d recommend you connect with in order to introduce your firm. Finally, if true, you can also explain that you may be attending a relevant conference in the next few weeks, and you wanted to introduce yourself in advance to see if it’d make sense to schedule time with the CEO (if they are attending).

Mock cold call interview case study

Firms may test your sourcing attitude and skills through simple interview questions (addressed in the section above); however, it’s also possible they want to go a step further and do a mock cold call case study interview.

For this case study, you’ll be asked to do a “role play” or “mock” cold call with an investment target. Typically, your interviewer will play the part of the CEO for the investment target, and your job will be to “sell” the CEO on the investment firm and gain as much relevant info as possible. Often, you’ll be given the name of the target company 24-48 hours in advance of your interview, so that you can do some preparation. Typically, the mock call with the CEO will be relatively fast (e.g. 15 minutes).

Then, after your mock call has concluded, sometimes firms will have you do a second phase of the interview role play. That is, you will call back your interviewer (this time he or she will no longer be role playing the CEO), and you will walk him through the lead and perhaps try to convince him or her to meet with the company’s CEO.

To prepare for a mock cold call interview, I first suggest you read the advice in the sourcing-related interview questions listed above. These should give you a solid base for handling the mock cold call interview (and cold calls in general).

However, I also provide actionable tips tailored to a mock cold call below.

Research the investment firm

Key to succeeding on a mock cold call interview is to know the firm you’re interviewing with. Just because it’s called a “cold” call, it doesn’t mean that you need to go in cold.

Make sure you can describe:

• The firm’s overall size and strategy
• Any relevant portfolio companies in related industries
• Typical investment profile

This will make sure you can accurately describe the firm and its track record to the lead you’ll be mock calling.

Research the target company & develop questions

Often, the firm will provide you with a real target company that you will be mock calling. If that’s the case, you should research all the critical basics (e.g. industry, product set, main competitors, past fundraisings etc.).

As you prepare, have a framework or checklist in mind for your criteria of what makes a “good lead.” I provided thoughts on this in the question above on what makes a “good lead.” Once you have this framework or checklist written down, try to answer as many of the questions about the company ahead of time. For those areas you can’t answer yet, add those to a list of areas you’ll try to ask about during your mock conversation with the company.

By the way, having a simple but clear checklist for what makes a good lead not only helps you develop a list of questions to ask the lead, but it also helps you sound really smart and competent when you report back to your interviewer about whether it was a good or bad lead. You can say something like:

“Well, I’m assuming that X, Y, and Z are needed to be an interesting lead to follow up on. X and Y look good. Z is still unclear, but based on this, I’d recommend we proceed with the lead”

Finally, if you really want to go above and beyond, I’d recommend you do a little background research on the company’s industry ahead of the call. It may be helpful to have both a “bull” and “bear” on the industry/market in your back pocket, as these can be helpful support to cite in your report back about the quality of the lead.

Be cool, calm, and concise!

Just remember, most of what they are testing in the mock cold call is how well you can represent the firm when nobody’s looking. Everyone knows that calling a prospect cold can be very challenging. You may not get what you want out of the call (a promising investment), but as long as you conduct yourself well and don’t get too pushy or flustered, you’ll do great in the interview.

If you are asked to walk the interviewer through the mock conversation and to sell him or her on the lead, just remember they’re really testing how concise and articulate you can be. Practice ahead of time explaining what the business is, what industry it’s in, and how it makes money.

Conclusion

Sourcing can be one of the most rewarding, if challenging, parts of growth equity and VC jobs. It’s a key part of interviews at these firms, and here we’ve covered many critical interview questions in this area.

To go into more depth, check out my article on growth equity case studies, or my full course on growth equity interviews and recruiting.