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How Venture Capitalists Can Get Quality Deal Flow-According to Experts
VCs are on a constant journey to get quality deal flow. There’s no shortage of options—reaching out to personal connections, attending demo days, branching out geographically, joining angel and VC community groups, and attending entrepreneurial meetups are some of the countless options. The challenge lies in deciding which opportunities are worthy of investment.
With so many potential investments, how do the most successful VCs optimize for quality deal flow? A Quora post asked experts to chime in and share their thoughts on the most effective strategies. Here are three tips from the experts:
Tip #1: Build your reputation
Regardless of which channels you rely on for deal flow, competition is inevitable. A strong reputation is the single most effective way to differentiate from the masses. A VC’s reputation is often fortified with a solid track record of providing valuable resources (in the form of capital, access to customers and new hires, and institutional knowledge, for example) to portfolio companies.
But there are several other under-exploited outlets for VCs to develop their reputation. David Rose, CEO of Gust and a Managing Partner at Rose Tech Ventures, recommends several potential outlets for VCs to fortify their reputations.
- Create and keep current profiles on online platforms
- Participate as a judge in business plan competitions
- Serve as a mentor for local accelerators
- Answer questions on Quora
- Attend local startup events and provide pro-active, helpful advice
- Write a blog about areas in which you're seeking deal flow
Tip #2: Build an engine
It’s unrealistic to rely on a single channel for quality deal flow. A multi-tiered strategy is a prerequisite for success. In response to the Quora post, John Sechrest, Founder of Seattle Angel Conference, explains, “A key mechanism for getting stronger deals is to build an engine that builds social connections, stronger skills and common expectations between the entrepreneurs and investors.”
Here, the “engine” that Sechrest is referring to the Startup Hall in Seattle, where several key elements—a coworking space, the home base for TechStars Seattle, and a collection of talent from neighboring institutions—come together. But the engine need not be a physical space. It can manifest in the form of a platform like Affinity.
With Affinity's Alliances, VCs can connect beyond their team and connect with any investor, colleague, or other ally to unlock who they know and how well they know them. Alliances unleash a whole new dimension of your network by giving you access to otherwise untapped opportunities.
Tip #3: Network for the long haul
We all know that networking is a sure-fire way to increase quality deal flow. But networking efforts will backfire if the intent is superficial and there is no mutual benefit. The key is to become a super-connector and adopt a long-term view.
In his book "Give and Take", esteemed organizational researcher Adam Grant describes three types of people: givers, takers, and matchers. On one end of the spectrum, givers prefer to give more to others than they receive. On the other end of the spectrum, takers are more self-serving and use people in their network to further their own agendas. Matchers lie somewhere in the middle. Grant discovered that the most effective leaders are givers. They embrace a long-term mentality and consistently look for ways to help others. By putting others' interests first and adopting a long-term time horizon, they instill high levels of trust and respect. The end result is that their networking efforts are more effective and give rise to new lucrative opportunities.
In response to the Quora post, Jay Kim, a Partner at Explorer Equity Group, explains, “When it comes to networking, just like many things in life, the most important thing is to practice patience. Be long term greedy, not short term greedy and don’t keep score. Give without expecting anything in return and always provide a disproportionate amount of value to those you are networking with. The minute you stop keeping score is the minute things will start working out.” For Kim, like many VCs, his network has been the most successful source of deal flow as an investor.
Capitalizing on quality deal flow is a VC’s greatest competitive advantage. Venture capital is an industry defined by exceptions and outliers. It’s all about exploiting the right relationships. By building a strong reputation, creating an engine that fuels social connections, and networking for the long haul, VCs can maximize quality deal flow.