It’s common for venture capital firms to screen hundreds, if not thousands, of deals every year to win a handful of deals. But sourcing lucrative opportunities goes beyond volume. Dealmakers need to fill their pipeline with high-quality deals to gain a competitive advantage and avoid wasting time chasing poor fits.
With more companies and opportunities to evaluate than ever before, firms need to reliably surface the deals with the highest chance of success. Data analytics dives into internal and external insights to help dealmakers cut through the noise and get to the right deals first.
This article explores how you can use deal sourcing analytics to uncover the best deals and maximize the ROI from your deal sourcing efforts.
Key takeaways
- Deal sourcing analytics harnesses data throughout the investment process, from sourcing to close, to help private capital firms find and close the right deals.
- Using data-driven deal sourcing strategies helps dealmakers fill their pipeline with high-quality deals that are a good fit for their investment thesis.
- Affinity Analytics enables firms to strengthen deal sourcing by setting goals, measuring KPIs, improving operational efficiencies, and identifying winning behaviors within their teams.
The analytics-driven sourcing advantage
Venture funding might be up but the market remains complex, meaning investors are being strategic with where they invest their capital. To get into the best deals, dealmakers must use a combination of intuition, relationships, and data insights. Deal sourcing analytics provide VCs with quantifiable insights into potential deals, so they can source and prioritize the ones with the most promising potential—and stay ahead of the competition.
Itxaso del Palacio, Partner at Notion Capital agrees. “If you're a VC firm, it's a very competitive space, and everyone is trying to figure out what their edge is,” she says. “For us, a core focus has always been around data, good coverage, and being very informed in the market rather than very reactive.”
Fortunately, in an increasingly data-driven investing landscape, there are an abundance of sources that firms can analyze to improve their deal sourcing activities, including:
- Relationships and personal networks within their firm.
- Third-party databases geared toward investors, like PitchBook, Crunchbase, and Dealroom.
- Firmographic data, including valuations, last funding dates, and employee growth metrics.
- Social media activity, such as LinkedIn or X.
- Secondary data sources, such as public filings and press releases.
Even internal deal sourcing analytics can help give you a leg up in your sourcing activities. Historical activity from within your firm, such as deal origins, funnel analyses, and even relationship insights can be invaluable when it comes to identifying the strategies and activities that lead to successful deals.
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5 data-driven analytics strategies to improve venture capital deal sourcing
With 42% of dealmakers citing competition as the biggest factor impacting deal flow today , it’s not enough to simply fill your pipeline. You need to surface the signals and insights that point to valuable opportunities.
Let’s look at how you can harness deal sourcing analytics in your sourcing strategies.
1. Map and measure your deal pipeline
The deal pipeline in private capital is relatively standard across the board. Firms screen companies, which enter the pipeline, get funneled through various stages of meetings and due diligence, and the most lucrative opportunities turn into term sheets and closed deals.
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What varies from firm to firm are the mechanisms that propel high-quality deals through your funnel. Having a clear understanding of the metrics that impact your firm’s specific funnel can help you identify gaps in the pipeline and focus your efforts on the activities and deal sources that accelerate deal velocity.
Key metrics that you should be measuring across the funnel include:
- Deal flow volume: The total number of new companies that enter your deal pipeline.
- Conversion rates at every stage: The percentage of opportunities that move to the next stage of your investment process.
- Deal stage duration: The amount of time each opportunity sits within different stages of your pipeline.
- Relevance: The alignment of a potential target with your investment thesis.
- Win rate: The percentage of opportunities that turn into investments.
- Time to close: The amount of time it takes to close a deal.
2. Segment and analyze your VC firm’s deal sources
While your pipeline can offer insight into how you can better manage your deal sourcing process, you also need to know where deals come from and which sources bring in the highest-quality deals.
Analyzing your deal sources gives you data-driven insights to prioritize the deals most likely to close from the outset.
A best practice for deal sourcing is to identify and tag the source of every deal that goes through your pipeline, whether it came from a portfolio company referral, network connection, or even an accelerator. Then you can segment deals and assess performance for each source to understand which sources:
- Yield the best fit.
- Have the highest close rate or close fastest.
- Bring in high-quality deals.
This segmentation helps give dealmakers a predictive edge so they can double down on those types of deal originators.
There are almost always outliers that come from unexpected sources, but sourcing insights can act as an additional data point and be an effective way to operationalize your deal sourcing efforts. In a webinar with TechCrunch on data-driven investing, Stage 2 Capital’s Sakib Dadi elaborates on how they use data to identify opportunities, “We’re not just outputting a score, but we’re applying our own investor expertise in a particular space to really understand signal from noise in the data.”
3. Prioritize deals based on fit
Closed deals often come down to more than capital. The startup needs to match your firm’s investment criteria and you need to be the most valuable investor presenting a term sheet.
Data analytics can help quantify those criteria by providing undisputable fit scoring, based on factors like market, strategy, traction, and even team background. These scores can be used to prioritize and qualify deals at the sourcing stage.
Tapping into third-party data enrichment tools to provide a full picture of a potential investment opportunity helps you make more strategic deal decisions.
Tools with automated data-enrichment like Affinity, empower dealmakers to make faster, data-driven decisions by enriching company insights with proprietary data from Affinity and over 40 trusted sources. And market intelligence features like Industry Insights can surface additional market trends and competitor insights to help you evaluate deals with full context.
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4. Get the most out of your networks
Private capital is a relationship-driven industry, meaning deals can easily be lost when important connections aren’t centralized, kept up-to-date, or easily surfaced.
This is where relationship intelligence comes into play—transforming your firm’s email, calendar, and meeting data and communications to surface quantifiable insights, like which team member has the strongest tie to a founder and how strong your relationship is with a company or contact.
Having a firm grasp on the relationships in your firm’s network can help firms identify key contacts, surface deals, and get ahead of any competitors.
5. Use deal sourcing analytics to spot and fix bottlenecks
Over time, data analysis can reveal patterns in your funnel that are stalling your pipeline. This can include drop-off points, long time-to-close rates, and decreases in other key conversion points. For example, if your team is passing on too many deals at the due diligence stage, it can be a sign that better research needs to be conducted in earlier on in your deal sourcing process.
Understanding exactly where deals get stuck can point you to weaknesses in your deal sourcing strategy and places where your processes need to be refined.
3 ways to use Affinity Analytics to strengthen your deal sourcing
Having a deep understanding of sourcing metrics is essential to ensuring your team is spending their time in the right places.
Affinity Analytics can help teams analyze deal pipeline traffic, allowing your team to reflect on and improve your deal sourcing methods and processes. Here are some key ways you can use the data and analytics in Affinity to streamline your deal sourcing strategy.
1. Establish and measure against clear deal sourcing goals
To keep your team’s momentum while focusing on higher-quality deals, you must establish clear sourcing goals. Most teams have an idea of the sheer volume they need to source to stay competitive but have a harder time knowing how they are measuring up.
Affinity Analytics helps teams measure whether or not they’re sourcing effectively enough by:
- Overall volume
- Industry
- Region
- Founder demographics
KPIs will vary wildly from firm to firm, but setting clear expectations, tracking data consistently, and using Affinity Analytics dashboards to easily communicate progress can align teams' focus towards shared goals. For example, List Summaries make it easy to analyze trends by deal team, amount, location, and industry to better understand the deals in your pipeline.
With goals and progress clearly visible, your team can spend time cultivating relationships with your most important sources while driving your overall sourcing strategy.
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2. Improve operational inefficiencies
Measuring both the quantity and quality of deals can help you identify and address operational inefficiencies and further hone your ability to screen for the best opportunities.
Affinity Analytics’ Funnel Analysis offers a birds-eye view of your pipeline, so you have a clear understanding of your deals by source, monthly volume breakdown, and where your deals are stopping in your funnel.
You can also reflect on a deal’s last status before it was lost to understand where deals are falling off, to identify patterns in deal progression and opportunities for funnel optimization. These pipeline insights help you filter out noise early on and ensure you aren’t wasting resources further down the funnel by conducting due diligence on companies that aren’t the right fit.
3. Turn team activity into performance
You can take your operational analyses further by narrowing in on real-time team performance with Team Activity reports. Filtering deals by owner shows where your most important deals lie, how individuals are bringing in deals, engaging with prospects, and the average time to close deals by team member.
Team Activity helps identify dealmakers who may be behind on targets and may benefit from reinforced training and support. On the other hand, if one team member is driving your best deals or moving deals faster through the pipeline, you can identify and replicate their winning strategies across the team to boost overall performance.
Make data your deal sourcing edge
Honing into the data behind your deal sources while identifying opportunities to improve your sourcing process early on can help create a more consistent and more successful deal pipeline. In turn, your team will be better equipped to find and close more high-quality deals.
Ready to see where your best deals come from and win more like them? Get the guide to Affinity Analytics for private capital.
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Deal sourcing analytics FAQS
What deal sourcing strategies can benefit from deal sourcing analytics?
Almost all deal sourcing strategies can benefit from deal sourcing analytics. In an increasingly data-driven investment landscape, data analytics can improve everything from deal origination to understanding your deal pipeline. Analytics can break down your existing workflows and surface pain points in your data to improve investment decision-making, from sourcing to close.
What deal sourcing platforms have the best analytics for VCs?
Deal sourcing platforms purpose-built for venture capital, like Affinity, offer the best analytics for venture capitalists (VCs). Affinity Sourcing helps dealmakers find and engage thesis-relevant startups beyond their existing network right within their CRM. By centralizing relationship data, deal insights, and growth signals, Affinity Sourcing ensures you never miss a lucrative deal.
What metrics should private equity and VC firms track to improve their deal sourcing strategy?
Metrics that private equity firms and venture capital firms can track to improve their deal sourcing strategy include, but are not limited to:
- Deal volume
- Deal conversion and win rates by source
- Time to close
Looking at these metrics for different segments based on deal origin can help identify the best deal sources.
How can analytics improve the quality—not just the quantity—of deals in our pipeline?
Data and analytics improve the quality and quantity of deals in the pipeline by identifying the highest-potential opportunities and helping dealmakers make more informed investment decisions, so they don’t need to rely on intuition and internal knowledge to evaluate and move deals through the pipeline.
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