“Great content. Phenomenal women.”
This is what people had to say about California’s inaugural Women's Venture Capital Summit in 2022—and it’s why we attended their second event earlier this year, so we could learn about deal sourcing from some of the most successful VCs in the world.
Jennie Dvorak, Director of Product for Affinity, led a panel discussion on deal sourcing with:
- Lisa Dolan, Managing Director, Link Ventures
- Kira Noodleman, Partner, Bee Partners
- Caitlin Vorlicek, Principal, Sageview Capital
- Yuanling Yuan, Principal, SignalFire
Keep reading to learn best practices for deal sourcing when you’re tracking a lot of data sources and metrics, and how to use your data to improve that key ingredient for closing high quality deals: good relationships.
Highlight #1: Get creative with your data sources
Research for our latest predictions report revealed that VCs use at least four data sources when evaluating a deal. But for some, it’s many more. The panelists described tracking between 30–100 data sources in order to accurately assess talent at any given company.
These sources range from those one would expect, like GitHub and Pitchbook, through to some that are less intuitive, like:
- Company filings
- Intellectual property
- FDA approvals
A firm’s evaluation model can adapt to a company’s investment stage too. For example, at the seed stage, a model may be more heavily weighted toward data that assesses talent, whereas for later rounds the model shifts toward quantifiable company metrics like employee growth rates and revenue data.
All speakers agreed that it takes a lot of data to reach a small number of qualified opportunities. One firm mentioned they review 700 companies on a monthly basis to get an average of 20 worthwhile opportunities—making an investment in sophisticated data tracking and analysis a must.
Highlight #2: Front-load market intelligence work to accelerate deals later
You’ll often hear that success stems from focus. When it comes to closing deals, you can take action on this advice with thematic sourcing.
Panelists said thematic sourcing serves two purposes: to refine your investment thesis with market intelligence and to have higher quality conversations with companies that are a good fit.
First, in-depth market intelligence lets you know if the market is large enough to pursue an opportunity in the first place. When you use a top down approach to find companies that check well-defined boxes, opportunities reveal themselves more quickly.
Second, a focus on one sector will allow you to become an expert on it. For example, a firm focused on procurement for supply chain planning would attend supply chain conferences, frequent meetups to discuss papers on supply chain management, and hire senior advisors with supply chain expertise.
Third, when you can bring subject matter experts to meetings with founders, you’ll differentiate your firm through in-depth conversation—and be in the perfect position to land the deal.
Highlight #3: Focus on building relationships early and incubation during economic downturns
Panelists agreed that while deal making is more difficult during an economic downturn, it’s also one of the best times to build a company. VCs remembered companies that were born out of the last recession—Airbnb, Uber, Slack—and they recognized similar market dynamics now.
Just because today isn't the time to make an investment doesn't mean that won't be the case a year from now. That’s why VCs should focus on building relationships as early as possible.
This approach was described as “setting up a universe for companies to know we're going to be interested in the future.” That means tracking speed metrics like company growth and previous rounds of fundraising, and knowing when the time is right for casual relationship building versus active pursuit of a deal.
For example, if a company just raised in 2022 then any engagement right now is a relationship building exercise. But if a company raised two or three years ago and all the other metrics look good, that company can be prioritized in her sourcing efforts.
The panelists explained they were expanding their deal sources through incubating and starting companies. With mass layoffs at unicorn companies, many VC firms are focused on identifying talented folks who are now interested and have the experience to start their own companies.
Overall, the panel discussion was optimistic. VCs have a wealth of valuable data at their fingertips. Thesis refinement allows them to move more quickly. And it’s a great time for company building—if you have a fund set aside for incubation, now may be the time to scale up on deployment.