What can a private equity team do with a deal it passed on?

Who owns a deal your firm passed on?

In most private equity firms, the firm does. Opportunities that investment professionals source in their role are typically treated as firm property under employment agreements and the compliance manual, so a passed deal is not a personal asset an associate, vice president or partner can sell on for a personal finder's fee without approval.

That still leaves useful options. A team can decline well, keep the relationship for a later look, steer the company to a platform or another buyer through the firm, or, with the owner's agreement and compliance sign-off, point the owner to a non-sale option such as licensing the company's operational records. This guide covers each route, why personal fees cause trouble, and how a SourceX introduction of a passed-on company is handled under an outside-compensation policy.

What are the options for a company you passed on?

The right route depends on why you passed and what your firm allows. Each option has a different owner inside the firm.

The last two rows are where personal compensation questions appear.

Why is a personal finder's fee a problem?

A personal fee on a passed deal can breach firm policy, conflict with your own fund and raise legal questions. Even when the amount is small, the issues are not.

• Ownership of the opportunity. If you met the company through your role, the firm will usually treat the relationship as its own.
• Confidential information. Material received under the NDA, including the CIM, the model and data room files, can generally be used only to evaluate the investment. Using it to pitch the company elsewhere can breach the NDA.
• Fund conflicts. Your fund may want to bid later, or a platform may want the target as an add-on. A personal fee from another party cuts against both.
• Fund documents. Some fund agreements require certain fees earned by the adviser or its people to be disclosed to investors or offset against management fees. Compliance knows what yours says.
• Broker registration. A transaction-based fee for helping a company sell itself can raise broker-dealer questions. Whether someone must register depends on their activities, as the SEC's guide to broker-dealer registration explains. The statutory M&A broker exemption enacted in 2023 is narrow and conditional, according to a Greenberg Traurig summary, and it does not address data licensing introductions.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

For the outside view, see what deal finders are paid in private equity and how firms structure those arrangements.

Why can a passed company still be a data licensing candidate?

The reasons a fund passes rarely touch the company's records. A fund might pass on valuation, growth, customer concentration, sector or check size. None of that changes whether the company holds years of support tickets, CRM history, engineering reviews, SOPs and approvals that AI developers want for training and evaluating agents that carry out real work.

The bar is different from an investment screen. A passed company is worth introducing when it has:

• 50+ full-time employees at peak (contractors excluded);
• several years of documented operations, ideally with archived systems still reachable;
• records across many systems, often 10-15+ at stronger companies;
• the rights to license what it created; and
• an owner, CEO, CFO or other authorized representative who can sign.

A data license sells no part of the business. The company keeps ownership, approves scope and price, and receives a one-time payment, typically within about 60 days of invoicing once a buyer selects the data. For an owner who has just heard no from your firm, that can be a constructive follow-up, and it costs the fund nothing.

How do you route a SourceX introduction through firm policy?

Treat it like any other outside activity: owner first, compliance second, introduction last.

1. Separate the relationship from the information. Rely only on the fact that you know the owner. Do not forward or summarize the CIM, the model or anything else received under the NDA.
2. Ask the owner. Confirm they want to hear about a non-sale option before anyone else does. A one-line email is enough.
3. Disclose to compliance. Describe the company, how you know it, whether the firm might revisit it and the possible payment. Ask whether a reward may be kept, must go to the firm, must be offset or should be declined.
4. Read the program terms. Check the program terms for who can be a partner and how payments are made, then register in line with compliance's answer.
5. Make the introduction. Send the owner your referral link, which opens the SourceX application with your code attached, or enter the company on the partner referral form yourself.
6. Step back. From here the owner deals with SourceX directly: qualification, the data inventory, pricing, terms and buyer review all happen without you. You never see, export or describe the company's records.
7. Record the outcome. If a license closes and is paid, the reward follows the program terms and your firm's decision.

What should you say to the owner after you pass?

Keep the pass and the suggestion separate, and say plainly that you may be paid.

How is the referral reward paid?

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. A reward becomes payable only after the buyer pays and SourceX receives its fee; a lead, meeting or signed agreement alone does not trigger it, and no reward is guaranteed.

SourceX funds the reward from its own fee, so the company receives the same amount either way. Whether it stays with you, goes to the firm or is declined is a question for your compliance team. The rewards page explains payout conditions, the referral earnings calculator walks through the formula, and the explainer on what a referral fee is covers the general mechanics.

When should you leave a passed deal alone?

Some passed deals should stay passed. Skip the introduction when:

• you passed because of a rights problem, such as records that mainly belong to the company's clients;
• the company's data is mostly consumer personal information or protected health information;
• the firm expects to bid again soon, or a platform company is pursuing the target as an add-on;
• the NDA or your firm's policy restricts contact outside the investment process;
• the owner has signed a letter of intent with another buyer and its exclusivity may reach a license; or
• archives were deleted or systems shut down without an export.

For companies that fail on size or sale-readiness rather than records, the guide on companies that are too small or not yet ready for a sale has other routes.

Next step

Ask compliance how your firm treats outside compensation tied to passed deals, then register as a partner in line with that answer. The operating partner page explains how firms use the program across a portfolio, not only for passed deals.