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4 ways to attract better deal flow in venture capital

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In the venture capital world, "quality over quantity" unfortunately isn't quite true. Your firm may speak with thousands of companies before you close on a small handful of amazing deals by the end of your due diligence process. That said, the difference between 10 quality closes and 11 could mean a difference of millions of dollars. You have to somehow maintain both quality and quantity.

Berthold Baurek-Karlic, founder and managing director of Venionaire Capital, likens attracting the best deal flow to attracting top talent to your organization. Here are four key ways to improve your deal flow and prospecting using that talent-focused approach.

Focus on applicants that fit your mission

When you're sourcing deals, you get what you ask for. By clearly sharing your investment scope and strategy, you increase the likelihood that you’ll receive applications that fit that vision. You’ll also reduce unnecessary time spent reviewing and responding to those that don’t align with your firm’s vision or portfolio management strategy. Keep these tips in mind as you think through which companies may fit best with your firm. 

  • Be clear: Articulate what type of investor you are and describe your investment process, current portfolio, and track record. 
  • Tell your story: Communicate relevant information, including your firm’s previous experiences, latest success stories, trends, and technologies that interest you. 
  • Optimize your reach: Leverage platforms like Medium or consider listing on platforms like Dealmatrix and Crunchbase to make sure up-and-coming companies can find your firm.

When you follow these tips to determine whether a good fit exists, founders like Ari Bencuya are likely to come knocking at your door. 

Leverage your network

The network effect plays a key role in not only generating intros to new prospects, but it also has an outstanding effect on co-investments and deal collaborations. The world’s best networkers, super-connectors, nurture a wide array of relationships that they can draw on when needed.

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Habib Kairouz, Managing Partner of Rho Ventures, shared in an interview with Forbes how he takes networking to the next level. Kairouz’s firm sources its deals from a pool of service providers, lawyers, accountants, co-investors, entrepreneurs, and former entrepreneurs. Kairouz said, “80% of the deals we invest in come from our own network, while surprisingly 20% come from cold calls.”

Mary Faulkner, co-chair of the Denver chapter of DisruptHR, sums up the power of networking simply and effectively in this tweet: “Networking enables ‘Deal Flow’ - visibility of how decisions are made, who does what, who the influencers are.”

Participate in your start-up community 

There are multiple ways you can engage prospective founders. Whether in-person or virtual, it’s often worth the effort to prioritize attending accelerator and incubator Demo Days, as well as other meetups such as speaker nights, investor meetings, or launch events. 

At its core, this is still directly tied to leveraging your network, but finding direct lines to new connections makes it much easier. The key is to attend events where you can get to know the community and build your brand. A strong reputation will make you more approachable and will, in turn, drive the kind of authentic conversations that result in better deal flow. 

Smilen Hadzhikostov, head of business development at XOM, wants VCs to know that money isn’t everything in investing. In addition to discussing more personal goals for individuals, he says, “You can improve your deal flow quality by building relationships with founders and being consistent with your support...Founders hear a lot of promises, but many of them are never fulfilled. Be among the people, who follow-up and deliver.” 

Being a reliable investor for your portcos is a conversation for another blog post, but when it comes to sourcing, making it clear that you will provide support post-investment will grow your firm’s reputation and attract the right GPs. While some of these new opportunities may come to you, you should also be going to them.

Scout actively and learn where you can

Immerse yourself and actively scout for start-ups by engaging with key leaders in the areas you are most interested in. Events and meetups are a great place to do that, but you can be more specific. If your focus is in high-tech, engage with those on the leading-edge—leaders such as technical and bio-engineering universities or high-tech supporting institutions. As your network grows, so too should your industry knowledge.

Niccolò Sanarico, Investment Manager and CTO at Primo Ventures, offered a succinct summary of scouting in a blog post dedicated to deal hunting. Sanarico described scouting as “part art and part science."

When it comes to scouting, Sanarico's clearest recommendation is to be visible. Be a recognized thought leader in your segment. “Questions and ideas get to those who are thought to be able to answer/react to them,” he adds. Being knowledgeable, networking, and having a highly quantitative spirit will bring the right companies to you.

A lot of the advice offered by industry leaders such as Baurek-Karlic and Sanarico is intuitive. Without a disciplined approach, however, your efforts to attract better deal flow will likely miss the mark. Following the best practices outlined here and building repeatable systems can help you set yourself up for deal flow success.