Seven Deal Sourcing Lessons From Leading Investment Teams

Venture capital success is directly correlated to the quality of deal flow that the firm is exposed to. So to ultimately close only those deals that align with your vision and goals, the pool of deals that you are choosing from must be vast and of good quality. Deal sourcing, then, becomes a crucial step in the process.

To ensure that you are using your time and resources effectively, it is best to follow a streamlined approach to deal sourcing. Let’s take a look at seven best practices that help leading investment teams bring their A-game when it comes to deal sourcing.

Maintain relationships and follow-up

Networking isn't just about attending events and exchanging business cards. For networking to be meaningful and result in quality deal sharing, expending energy in maintaining your existing relationships is a must. Each networking relationship will be different, and it may not be worth it to devote significant time and energy to some of them. So evaluate your position and decide how you wish to maintain each relationship. It is usually after the shiny toy phase passes that your relationships with founders or other investors will deepen. While this requires effort on the part of both parties, the payoff is ultimately worth it.

One way to maintain these relationships is to check in regularly with your contacts. You can schedule periodical check-ins either in the form of an informal phone call or a full-fledged meeting. At the end of the day, every healthy relationship is built on balance and is sustained by an equal give-and-take. Keep in mind the firm's bandwidth and be careful not to bite off more than you can chew. You are better off maintaining a few strong relationships in the venture capital sphere than holding onto too many superficial ones and ultimately losing out on the connections that can support you.

Keep track of what’s working and what isn’t

In addition to using multiple sources to get deals from, keep an eye on each of these and measure their efficacy against your goals. Whether these are warm introductions you usually receive from a certain set of fellow VCs or a scouting program you recently launched in a university, it doesn't suffice to simply set these channels up and expect a flow of high-quality deals. Some channels may dry up for a certain period while others may no longer serve you.

Whatever the case may be, it is important to keep an eye on the performance of each of these sources. This way, you can make informed decisions about those that need to be monitored more actively and those that need to be dropped so that you can begin to branch out and explore other sources.

If certain sources are working well for you, you may also look into similar alternatives to maintain the steady deal flow. Decide on regular intervals at which to conduct these audits and reflect during these sessions about what you wish to move forward with and what might need some looking into.

Don’t underestimate the power of your investment thesis

This falls under venture capitalism 101, but we cannot stress enough the importance of a well-thought-out, solid thesis that embodies your firm's vision and mission. Only when you have clarity on what you are primarily looking for can you have impactful conversations with founders that lead to good business. Founders may hesitate to approach a firm that does not clearly declare its interest as they may not know if it is worth having that initial conversation at all.

While it is good practice to eventually diversify your portfolio and take greater risks in terms of who you choose to invest in, a robust thesis is a crucial starting point without which it may be fairly easy to get lost at sea. The thesis helps you streamline your deal flow and not waste time discussing deals that are not the right fit at the moment. Such clarity is beneficial both in terms of filtering deals as well as building a strong brand identity. The latter, in turn, is also how you can be recognized and build a reputation.

Build an online presence

Once you have your thesis, sharing it with others is an entirely different exercise. VCs rely heavily on networking to source their deals, and a great deal of networking is now happening online. Not using social media and other web-based strategies to show you are putting your best foot forward makes the firm invisible to many. Twitter, for instance, allows founders and funders alike to quickly keep up with others in the space as well as reach out to them when they need to. It is important to not only keep up with what’s going on around you but to actively participate and engage with others in the ecosystem. 

One of the most popular and easy ways to generate content today is to tweet or publish writing via a blog or newsletter. Publishing content that is relevant and adds something to the larger conversation is an effective way to solidify your presence in the ecosystem. This can range from sharing tips for newcomers on the scene or posting insights from your years-long experience in a particular industry. Having such a presence helps founders familiarise themselves with the firm and its employees, which also makes it easier for them to reach out to you if they see potential in the relationship.

An online presence may not be the driving force of your success, but it will certainly contribute to your networking and reputation-building efforts.

Tap into the network

Your network must simultaneously be both vast and tight-knit. You can choose to expand it when you need to source deals and maintain quality deal flow, but also stick to who you know when the firm's bandwidth is running low.

When sourcing deals, however, it can be easy to miss sources within the network. You may be exchanging notes with fellow VCs and having your scouts update you, but there are ways to creatively exercise your connections as well as reach out to people in your vicinity that you may not even have considered as part of the network.

Lawyers and consultants, amongst other service providers, are some of these hidden heroes that boast special knowledge of deals currently up for grabs. Their unique positioning in the space enables them to approach it differently, but they also have access to and relationships with various players in the field.

Founders are another underutilized resource. In addition to directly approaching VCs with their ideas and deals, they also engage with other founders, just like you interact with other investors. Founders that you have established relationships with may be positioned to introduce you to other founders that they think would be a suitable match for you, especially with their deep knowledge of your interests and workflow.

Funds are only one piece of the puzzle

For you to source deals from your network, you have to lay equal emphasis on sharing quality deals with them. To receive quality and consistent deal flow, look at fellow VCs and learn what they are in the market for. By getting to know them, you can recommend deals that are relevant to their thesis and can generate value for others in the ecosystem. Deal sharing contributes to your reputation and is one way to signal that you are able to provide value to others outside of monetary offers.

Founders, too, need to know that you will be able to support them in addition to the funds that you will give them access to. They may seek your help in terms of non-monetary resources and connections to service providers or may simply want to pick your brain when making business decisions. In any case, focus on what you can bring to the table besides money and prioritize sharing relevant, high-quality deals with other VCs.

Make informed decisions using data

Managing all your relationships as well as the deals that you are actively looking at manually is time-consuming. Instead you can use a purpose-built CRM that helps you simplify and make sense of this complexity. Zapflow, for instance, provides end-to-end support to VC firms by streamlining their workflows. Apart from displaying your data in an easy-to-understand manner, we help you make data-backed decisions through our partnership with Ocean.io. Through this integration, we help you keep an eye on trends in the market and identify deal opportunities before other VC firms.

You can customize Zaplow to meet your needs and enhance your deal sourcing and management workflows. The visibility that a CRM such as Zapflow provides is necessary to stay on top of what is going on in the ecosystem. The volume of data makes it impossible to manage it manually, so automating the storage and analysis of this information is crucial to effectively handling it. With a CRM, everyone on the team is on the same page, which improves decision-making processes and facilitates more efficient collaboration.

Book a demo with us today and solidify your firm's deal sourcing strategy.

Topics: deal flow, deal flow process, deal flow tracking, deal flow management

Akshat Biyani

Written by Akshat Biyani