How can you create a deal sourcing process that sets your firm apart?

Championing knowledge-driven deal origination and sourcing is paramount, particularly through proactive engagement with key industry players. Establishing connections across the value chain not only builds a robust network but also facilitates continuous learning. This approach swiftly identifies trends and unmet needs, allowing for focused investment strategies and early identification of promising founders and companies. While having a VC network for syndicate deals and access to top-down desktop research is valuable, nothing surpasses the effectiveness of direct industry relationships and proprietary origination for early-stage opportunities.

A VCs ROI often depends on whether they lead or follow. VC founders must decide whether they have the team size, skill set, track record, origination network and investor support to lead. In the US the ratio of follower VCs to lead VCs is around 3:1. That ratio is much higher (I can't find an exact number) for the rest of the world. The point is that if you don't lead, you can calibrate the six factors mentioned in this article into a strategy, but if you can't secure a spot on the CAP table of the targets you want to invest in, at a price you've based your fund's return on, then the strategy is null and void. That's why angel syndicates can sometimes deliver better LP ROIs. They act like lead VCs and enter very early.

Certainly True. Yet, it’s amazing how often due diligence can fall short when important risk factors or key indicators aren’t fully understood. In my opinion, many investors could benefit from truly listening to empirical evidence - it’s an approach that’s both straightforward and effective.... ??

Building a network, increasing your footprint, securing pipeline partnerships with institutions where innovation is evident and finding ways to connect with people remotely. Relying upon in-person engagements will greatly hinder your exposure and opportunities.

Documenting a process is key. Even for a small funds, it is necessary to write down your process and how your deal funnel flow. This obviously include your decision criteria at each steps. The main goal is to make your investment decision more reliable, and thus increase your returns. Writing down your process will also ease your communication.

To outstand your firm from others ??, IMHO, several aspects to bear in mind: ?????????????????? ???????? ?????????????? ??: Adapt your outreach to each potential deal, highlighting your specific investment focus and value proposition; o???????? ???????????????? ???????????????? ??: Go beyond generic introductions and provide insights relevant to the target company's industry or challenges; l?????????????? ?????????????????? ???????????????? ??: Use a mix of email, phone calls, social media, and in-person events to reach out to potential deals; t???????? ?????? ?????????????? ??: Monitor the effectiveness of your outreach efforts and adjust your approach based on results.

Your network is the key. You can have a great value proposal. A well documented communication. A perfect fit with your target. If you do not maintain your network, keep regular contacts and provide value, you will lose out. Your inflow won't change much, but your retention of contacts will drop. The average quality of your contacts will also not increase. That increase in quality is the key to increasing your efficiency. As your time is limited, you need to identify and retain high quality contributors. That is your network. And they are the key to getting high quality deals.

As for startups, VC firms need to showcase what make them unique. The clearer the positioning, the better and larger the incoming deal flow. On top of that, building a strong brand and an excellent reputation are key activities.

Follow what happens to startups you wanted to invest in but couldn't. You will obviously follow up what happen in your company portfolio. And by extending the sample, you will collect more data and thus learn faster. Also keep a detailed tracking of your investment thesis for each potential deal, and verify it as you get more data. By having a systematic approach, you will analyse your performance and improve faster. You might not be the best at a point in time, but you should aim to improve the fastest.

Take a proactive approach to deal sourcing by reaching out directly to promising startups, founders, and industry experts. Utilize LinkedIn, cold emailing, and networking events to initiate conversations and build relationships with potential investment targets, demonstrating genuine interest and adding value upfront. Proactive outreach has been a cornerstone of our deal sourcing strategy, enabling us to identify and engage with promising startups early in their journey. By conducting targeted outreach campaigns and personalizing our communications, we've been able to establish rapport with founders and uncover compelling investment opportunities.

The new generation of professional investors is using the same methods (network, outreach etc.). But on top of that they add a data centric approach. With the right set up, those data driven VCs are able to automate fully their funnel and reporting activity. They can also manage, collect and analyze enormous amount of data from various sources (patents, LinkedIN activity, research papers etc.) to identify promising founders when still in stealth or very early stage, find similar profiles, take non biased decisions, tap into unstructured data using LLMs etc.. AI is a game changer for VCs too!