- May 31, 2023
I understand that social capital goes beyond mere transactions and extends into trust, reputation, and collaboration. By nurturing and expanding one's social capital, you can position yourself as a trusted advisor, mentor, and valuable partner within the startup ecosystem. This not only improves your deal flow but also enhances your credibility and attracts high-potential startups seeking guidance and investment.
Social capital helps improve deal flow and unlocks a wider range of opportunities for proactive VCs. A study by the Harvard Business Review finds that a sizable portion of successful VC deals, approximately 30%, come from former colleagues and business associates. Around the same percentage of deals come as referrals from other VC firms and investors, or as recommendations from existing portfolio companies. And just to give you an idea of how important social capital is for better deal sourcing, only 10% of successful deals arise from cold email pitches and other standard deal sourcing processes, the survey reports.
Referred to by investors or pre-existing portfolio firms, which highlights the importance of VCs utilizing their established social capital to improve their deal flow.
How to unlock social capital
Leveraging social capital for optimized deal sourcing requires you to build and maintain meaningful relationships with peers, competitors, stakeholders, clients, and colleagues. With the right give and take, this network of professional friends and acquaintances develops a mutually beneficial system of information sharing. Adequately nurtured, the network transforms into an asset of social capital and provides steady returns in the form of new and profitable investment opportunities.
Here are a few ways you can start building and leveraging your VC’s social capital:
Attend networking events
Attending industry-relevant conferences, events, meetings, and discussions increases your access to other investors, founders, and key players. Conversing with them, listening closely, and sharing worthwhile ideas will help you establish rapport and expand your network and slowly grow your social capital. Exchange professional information with those you’d like to collaborate with in the future and maintain these relationships by keeping in regular touch. This helps you establish yourself as an active participant in your sector.
Participate on social media platforms
Being active in online communities and forums increases social exposure and let you contribute to discussions and build relationships with like-minded individuals. Platforms like Twitter, Telegram, and LinkedIn, for instance, are great places to share content, posts, articles, and messages, find relevant people to engage with, and connect with potential deal sources.
Establishing a presence on social media platforms also makes it easier for others to find and reach out to you.
How to establish social credibility
Establishing leadership in ideas and vocalizing your thoughts as a venture capitalist helps you build credibility, foster trust, and attract better deal flows. Founders and investors are more likely to reach out to you based on your authority within the industry and credibility on social platforms.
Here are a few effective ways of establishing social credibility:
Write articles or blogs
Share your expertise and unique insights with your network through relevant blog posts or articles. Those who provide analysis of ongoing trends and actionable advice for entrepreneurs, founders, and other investors, start getting recognized as a valuable voices in the community. Share your work across your website and on LinkedIn and other platforms to reach as many people as possible.
Speak at conferences
Make a point never to turn down a speaking invitation, whether it's for a seminar, conference, or other setting. Lectures, panel discussions, and debates, for instance, help you shed light on sound investing philosophies, new ideas, and outlooks. Speaking at public events increases your visibility and establishes your authority in your specific domain of expertise. That makes it more likely for other investors, entrepreneurs, and professionals to send genuine referrals your way.
Increase digital contribution
Apart from attending physical events, hosting a webinar or contributing to a podcast can work incredibly well in building social capital. They can help you reach wider audiences with your ideas. They are also excellent platforms for collaboration with other industry experts and prominent voices.
Add value to your social network
Sharing your experience and knowledge adds value to your network of peers and professionals. As a result of consistently enriching your network, you strengthen your relationships, establish trust, and position yourself as a valuable resource. Here are a few ways of adding value to your social network:
Offer a helping hand
Keep an eye out for opportunities where you can step in to assist someone, either through advice or intervention. Providing guidance and support can help you materially benefit someone in their professional endeavor. Even feedback or constructive criticism can have far-reaching impacts on others within your network. Being supportive and generous with your resources in this way will help you build relationships based on mutual trust and reciprocity.
Leverage your network not only for yourself but also to connect others who can benefit from knowing each other. Introduce individuals with interests or expertise that facilitate new collaborations. If you make many introductions, you are seen as a valuable connector in your network, and more people will appreciate the opportunities you create or introduce them to.
Share relevant articles, market insights, reports, or research findings that others can also benefit from. If you come across job openings or investment opportunities that are better aligned with someone else’s interests, make sure to share them. A person who is generous with their resources becomes indispensable in any social network.
As we mentioned before, referral networks can play a giant role in increasing deal flow in any venture capital environment. Referrals are a reliable way of sourcing new opportunities to invest since they come from a trusted individual or source in your network.
Referrals also help streamline the deal-sourcing process. If you share a bond with a referrer, they are more likely to understand your investment criteria. The deals they send your way are more likely to align with your interests than cold leads.
The question is, how do you improve your referral process? Here are a few strategies to help cultivate more effective referrals:
Communicate your investment criteria
Mention your investment criteria clearly to those in your network. If you successfully provide information about the deal types you are looking for, it might be easier for others to identify potential opportunities and refer them to you.
Keep in touch
By keeping in touch with people in your network and meeting them regularly, they are updated on your activities and thoughts and vice versa. This will increase the likelihood of your receiving relevant referrals.
When you get a referral, act quickly on the follow-up. Delayed responses might undermine the trust that the referee placed in you. If you show a sense of urgency, it showcases your professionalism and could increase the likelihood of receiving referrals in the future.
The importance of managing deal flows
Building social capital isn’t easy! It's a time-consuming and laborious process that delivers results over time. Developing genuine connections, remaining constantly engaged, and attempting to add value to people’s lives can drain your energies.
While streamlining your deal-sourcing process with Zapflow, you can build your social network in Zapflow, connect, track, and collaborate with an intuitive deal-flow management platform to help you make better investment decisions. Use it to generate instant portfolio analysis, handle communication, and leverage AI to track critical information - all on the same platform.
Get in touch with Zapflow today!