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Venture Capital

Four Strategies for Venture Capitalists To Source Their Next Big Deal

By Rebecca Hinds

Our networks are teeming with opportunity. Unfortunately, these opportunities often go untapped. Even venture capitalists—for whom the strength of their network is a key predictor of success—struggle to harness their network effectively. The result is that they miss out on key opportunities that they should have captured, while also wasting time searching for intel that should have been at their fingertips. 

Effective VC deal sourcing is a prerequisite to success. Deal sourcing is an art. The most successful VCs rely on a combination of sourcing methods. At the heart of effective deal sourcing is a strong reliance on one's network. If you’re looking to optimize your VC sourcing methods, it’s important to first identify the key contributors to your current deal flow and diligence process. Only then can you monitor these connections and maintain and forge strong relationships. 

Here are four tips for sourcing VC deals effectively and securing your next golden investment.

1. Stay in touch with top introducers.

Venture capitalists are perpetually flooded with emails from investors, startup founders, investment bankers, and others. Consider Christian Hernandez—cofounder and managing partner of London-based White Star Capital—, for example. Every month, he receives 5,000 emails from more than 1,000 people. This volume of email—which is not atypical for a venture capitalist—can easily result in deals falling through the cracks. It’s difficult for venture capitalists to make sense of their inboxes and, in particular, understand which people in their network have the most positive impact on their deal sourcing effectiveness. 

Using Affinity, you can automatically cultivate a list of your top deal referrers. With Smart Reminders, you can make sure you maintain constant contact and ensuring you are following up with them at a regular cadence. Staying in touch will help ensure that you build strong relationships—and that you are top-of-mind when your top deal referrers encounter a great investment opportunity in the future.

2. Build relationships with co-investors. 

The most successful venture capitalists continually build relationships with the co-investors at their existing and prospective portfolio companies. This is one of the most effective ways of increasing deal sourcing. Here’s how you can automatically develop this list using Affinity. Simply build your list of investors, request an introduction to relevant individuals from someone on your team, and start building the relationship!

You can also use Affinity's Alliances List Maker to expand the reach of your network even further. Decide on your target demographic, and Alliances will display every relevant prospect who you can connect to via your allies’ real-time networks. Looking to connect to CIO in the biotechnology industry or CMOs in the gaming industry? With Affinity, knowing which people in your network can pave a warm introduction to these individuals is all at your fingertips. 

3. Create watchlists of companies in your current network.

Successful deal sourcing depends on early outreach. Timing is everything—venture capitalists frequently turn down promising investments simply because the timing is not right. Markets change quickly. The most effective venture capitalists keep promising investments warm in case they turn into investment-ready opportunities down the road. 

Using Affinity’s Saved Filters, you can create an actionable watchlist of potential deals based on your investment theses. You can label these companies according to deal stage (for example, seed-stage) and industry (for example, healthcare). By periodically revisiting this watchlist during your Monday investor meetings and ensuring constant contact with the companies on your list, your team can avoid missing the next important investment opportunity. Here’s a quick demonstration of how you can leverage Affinity’s Saved Filters to create actionable watchlists. 

4. Keep track of strategic advisors. 

Venture capitalists are always trying to minimize unnecessary risk. One of the most effective ways to do this is to perform due diligence and reference check potential investments. 

Using Affinity, you can keep track of strategic advisors to enable rapid and effective outreach when you need to engage with them for due diligence. Work with your team to align on a set of labels to categorize your potential advisors (for example, individuals working in Healthcare, individuals located in New York, or CEOs). 

Once you sort your advisors into interpretable categories, you’ll immediately know who to turn to when vetting deals. When conducting due diligence, having access to trusted opinions at your fingertips not only minimizes risk, it also saves time. Here’s a look at how you can automatically categorizing your advisors using public data integrations. 

Don’t underestimate the power of your network. In all likelihood, your network is swarming with untapped opportunities. The four effective sourcing methods described here can help you unlock new opportunities—today—and help you find your next golden opportunity. 

Venture Capital