Deal sourcing can be tricky! But when the success of your venture capital firm depends on the quality of deals you source, how do you go about finding the next big investment opportunity?
Traditionally, VC firms primarily rely on investor and founder networks to source quality leads. Your strong personal network can be a dependable source of regular referrals to your firm. However, in the increasingly competitive VC landscape, using software tools to improve your deal-sourcing process can lead you to startups with a high potential for success, giving you an edge over the competition.
What are the best tools for deal sourcing?
The purely network-driven deal-sourcing process is generally time-consuming and has a high lead time. Using the 5 deal sourcing tools outlined below can help you organize your referred leads while sourcing new ones through alternative sources. These tools drive efficiency and streamline your processes to generate a higher volume of quality leads.
1. Use a CRM platform custom-built for VCs
It’s no secret that about 70% of good VC deals are sourced through existing networks. Creating a robust network by building relationships with angel investors, startup founders, and other VCs will help you access promising deals. However, with an ever-expanding network, it’s essential to keep track of contacts and referrals so you can act quickly when great deals come your way.
Better data sources as well as efficient data management will help you significantly improve your deal flow. The most competitive VCs use purpose-built Customer Relationship Management systems or CRMs. For example, the Zapflow CRM is specifically designed for VCs. It enables VCs to manage multiple operations, such as portfolio monitoring, fundraising, exits, and deal flow management, on the same platform. It also allows you to set up reminders, for example, an alert to follow up on a deal under consideration after a week or get an update from a company you are following in 6 months.
By regularly following up with your network and keeping your leads organized with Zapflow’s CRM software, you can identify and close good opportunities faster than your competition.
2. Use deal sourcing platforms and networking apps
To source the best deals, it’s essential to know where to look. Consider creating a presence on various deal sourcing platforms for exposure to the mos exciting startups and for networking with founders. These platforms strengthen your deal sourcing process by expanding your lead generation capabilities beyond your existing networks
For example, you can create a free profile on OpenVC, which provides quality-screened deal flow and connects VCs with startups that are the right fit for their investment criteria. If you’re worried about being constantly spammed by startups that need funding, this platform, which only allows 1 outreach per week, will assuage your concerns. 1000+ VC firms across the world use OpenVC, and 100+ pitch decks are sent through the platform every week.
Weave is another great networking and deal-sourcing platform for your VC firm to consider. This mobile app functions like a matchmaking platform for companies and investors. You can sync your LinkedIn profile, create a bio stating what you’re looking for, and accept or reject opportunities according to your interest. You can also choose specific rooms in which to be visible, for example, “startups needing funding” or “tech startups”. This lets you cultivate meaningful connections with founders whose companies match your sector interest or desired startup stage.
3. Use software to qualify your deal flow
With an efficient deal sourcing system in place, you might face a large influx of promising investment leads. However, without a smart optimization process to qualify your deal flow, you can get stuck with endless due diligence.
Platforms like Sevanta Dealflow offer useful tools to sift through leads. This built-for-VCs platform created by a former venture capitalist offers several investor-focused deal funneling features to quickly qualify your deal flow. For example, you can conduct research and financial analyses through VC-specific filtering options to identify companies that are the best fit for your investment thesis. This feature will help you quickly shortlist deals that match your interests from the larger pool of leads in your pipeline.
LinkedIn is another platform you can use to qualify your deal flow. Widely known for its networking features, LinkedIn can help you connect with founders and understand how their broader professional backgrounds have prepared them to succeed in their current ventures. By revealing mutual connections, LinkedIn also plays up the network trust factor and helps you develop confidence in the founders you are evaluating.
4. Platforms to gain industry insights
Given the fierce competition in the VC industry, use platforms like Crunchbase, Pitchbook, or CB Insights to analyze startups, gain valuable industry insights, and keep abreast of startup news and the latest investing trends.
Many VCs use Crunchbase, a company database, to attain financial information and live company data about private and public companies. With a free account, you can create a custom tracking list of companies and add alerts to monitor company activity, which increases the efficiency of your deal sourcing and follow-up processes.
The Pitchbook platform also serves as a comprehensive data source for the global capital markets while offering valuable insights through its proprietary research and analysis. Similarly, VCs often use CB Insights to stay updated on the latest technological trends and find great investment opportunities backed by proprietary data and thoughtful analysis. Finally, you can also check out Capital IQ, which enables you to pull public market information and compare companies' financials. VCs love this platform’s Excel plug-in that automates analysis work with shortcuts, making comparisons more efficient.
These platforms enable you to access company and industry data as well as analyses and insights that help you shortlist deals, systematizing your deal flow management process.
5. Use software for deal flow organisation
When bombarded with good leads and industry data, your firm may miss out on great investment opportunities if you lose track of the information flow. With a great team relentlessly scouting for leads, it’s important to employ a swift deal flow management process to avoid extra due diligence work and close deals before your competition.
Zapflow’s deal flow management software is custom-built for VCs to keep track of valuable data and capitalize on good investment opportunities. Our tools even work with non-linear and complex VC deals and keep all your data organized for efficient deal flow management. By connecting your email inbox, you can centralize all deal-related communication on the platform to incorporate essential details from email threads and store data in one place.
Zapflow’s platform helps optimize the essential functions of a VC firm, like portfolio tracking and reporting, market research through Zapflow Explorer, and more. If you’re ready to streamline your investment workflows, book a personalized demo today to learn how Zapflow can benefit you.