Private equity has never been more competitive¹. Funds are also sitting on record levels of dry powder², which has intensified the race for quality assets. At the same time, thematic investing has surged across the industry as firms narrow their focus and develop more specialized theses³.

Yet despite this sophistication, one part of the process still feels surprisingly outdated: sourcing and identifying the right add-on targets⁴.

Finding the right add-on targets for a portfolio company remains one of the most difficult parts of the deal lifecycle.

Across dozens of conversations with PE originators, operating partners, portfolio CEOs, and M&A advisors, we heard the same themes again and again. Add-on sourcing is slow, it relies too heavily on analysts who rotate out every few years, and traditional tools simply do not help teams understand whether a company truly fits a thesis.

Below are the three biggest reasons the problem persists and the new AI-native approach that is beginning to replace the old model.

1. Right-fit is incredibly specific, and databases cannot understand a thesis

Add-ons are never generic. They depend on nuances such as:

• revenue mix
• customer concentration
• service model
• geographic footprint
• margin structure
• leadership age or succession risk
• capabilities adjacency
• competitive whitespace

Even within the same vertical, two PE firms may have completely different perspectives on what a “good” add-on looks like.

Yet most sourcing still relies on:

• stale databases with rigid filters
• analysts searching manually
• expensive intermediaries who may not fully understand the thesis

As one PE executive told us:

Everybody has an investment banker. The database just tells you who exists, not who actually fits what we are trying to do.

Databases generate lists. Add-ons require strategic fit. That disconnect creates most of the sourcing pain deal teams experience today.

2. Analysts learn just enough to be useful, then leave

This frustration came up repeatedly in our conversations. PE teams rely heavily on analysts to do the manual labor of identifying targets. Yet analysts often leave just when they have finally learned the nuances of what the firm is looking for.

As one investor put it:

Our expertise walks out the door every time we lose an analyst. I need a way to scale our thinking, not restart it every two years.

When thesis knowledge sits inside people rather than systems, sourcing cannot scale. The firm loses institutional memory every time the cycle repeats.

3. The world changes too fast for static lists

Even a perfectly clean database begins aging the moment it is exported. Markets evolve. Founders retire. Competitors shift. Customer bases change. New service lines emerge.

Meanwhile, the portfolio company CEO is asking for an updated target list, and the team is still using a spreadsheet pulled several months earlier.

As one deal professional said:

We spend a lot of money for databases that give us dregs instead of insight.

The sourcing process cannot keep up when the primary tool is a static list. You can only win with analysis, not with a directory.

The generative shift: thesis-driven target identification

This is the gap that sc0red was built to close.

Instead of searching for company names, sc0red takes a PE firm’s investment thesis written in natural language and converts it into a custom assessment that can be applied to any number of companies in minutes.

Instead of a search like:

Which HVAC companies in Florida exist?

You can ask a more strategic question:

Which HVAC companies in Florida have recurring revenue, limited customer concentration, owners nearing retirement, strong maintenance capabilities, and a footprint that could expand into Texas?

sc0red then scans the entire market and evaluates each company against the thesis. The result is:

• a ranked list of best-fit add-on targets
• a detailed explanation of why each company fits or does not fit
• clarity scores showing where additional diligence may be useful
• thesis-driven analysis that scales across any number of companies

You no longer search for companies. You search for fit.

Your proprietary thinking becomes an asset rather than something that disappears when an analyst leaves.

Why PE teams are adopting generative sourcing now

Across every conversation and transcript, three themes stood out.

1. Speed to market has become a competitive advantage

Being early in a process can determine whether a deal gets done or not.

2. Firms want their own proprietary origination capability

They want to rely less on intermediaries and more on scalable, internal systems that reflect their own investment logic.

3. Fit is more valuable than volume

Deal teams do not want a list of a thousand companies. They want the twenty five that genuinely align with their thesis and a clear explanation of why.

sc0red directly addresses each of these pressures.

The database era is ending, and a generative era is beginning

The industry has outgrown static lists. PE firms do not need more names. They need better insight.

They need dynamic scanning, thesis-driven analysis, deeper strategic fit signals, indications of owner readiness, and a way to apply proprietary logic at AI scale.

The firms that outperform over the next decade will not be the ones with the biggest databases. They will be the ones with the smartest engines for identifying fit.

The question is no longer “Who is out there?” The question is:

Who is right for us?

That is the future. And it is already beginning.

To learn how Private Equity firms use sc0red to identify perfect-fit add-on targets for their portfolio companies, visit www.sc0red.com.

Sources

Footnotes

1. McKinsey Global Private Markets Review https://www.mckinsey.com/industries/private-capital/our-insights/global-private-markets-review ↩

2. Bain Global Private Equity Report https://www.bain.com/insights/topics/global-private-equity-report/ ↩

3. BCG Thematic Investing in Private Equity https://www.bcg.com/publications/2023/thematic-investing-private-equity ↩

4. Bain How Private Equity Firms Can Win in Sourcing https://www.bain.com/insights/how-private-equity-firms-can-win-in-sourcing/ ↩