Diary of a venture scout: deal-flow hunting
This post could have remained in my “mental repository for drafts” for a long time, but thanks to Mark Suster and his great post on proprietary dealflow for early stage investors and to David Teten for his work on deal flow origination I finally decided to take it out of the drawer. Last, but not least, thanks to Stefano Bernardi for his series of posts (in Italian) on being an angel investor. You should check all of them out for a wider and more complete view on the subject.
Scouting for entrepreneurial projects and startups is part art and part science. The balance between the two is quite variable, but it definitely means:
There are several channels a scout can tap into to get to deal flow, and I’d like to outline a few ideas about the main ones. For each single investor relative weight might vary (but not that much), while many have strong opinions about specific sources of deal flow (e.g. Mark Suster will not attend a Demo Day). Here we go:
Personal network: probably unsurprisingly, personal network is possibly the best source for quality projects, and also the most difficult to build. From this source you will receive two types of proposal: business ideas from direct connections, and business intros from direct connections. A scout should build&train carefully his network, in particular if he has previous experience in the industry, as this will highly influence the quality of projects he receives. In doing so, the scout should be open as to what is of his interest, and should keep his network up-to-date on what he is doing.
Personal standing and visibility: this source of dealflow is just for the few. By visibility I don’t mean being featured on Forbes, but I do mean being a recognized thought leader in a certain segment (e.g. on entrepreneurship, SaaS, big data or on given technologies). Questions and ideas get to those who are thought to be able to answer/react to them.
Primary Research: this one needs real action. In short: it means getting out of the office. Attending events, reaching out to people, following startup communities and “showcase” sites such as betali.st or angel.co to see what’s trending. Mark Suster has a great point on talking to professionals (such as lawyers) who are known to work with early stage enterprises. Scouting for great projects is hard work.
Wait in front of email client: don’t. At the seed stage, I rarely see great projects getting directly to my inbox (though it’s probably my fault, in primis not being anything like my point #2 above).
If you are an entrepreneur planning to meeting investors, the bullets above should be quite relevant: attend events where you know investors will attend, tap into their connections, use your own network, but most of all create a great startup that everybody would like to invest in (e.g. by bootstrapping or getting FF&F money). Traction will attract investors to your project, while the opposite in not necessarily true. Do not, please do not start your fundraising activity by sending e-mails to [email protected]yourfavoritevc.com.
In the next post, I will write about getting to the right investor.
I am an Oxford MBA and an engineer with a passion for innovation and startups. I currently work with dPixel, a venture capital advisory firm based in Italy, and advise a few great startups such as Wanderio. Everything you can find here is my opinion alone. You can follow me on Twitter. Find more about me on Linkedin.