Good deal flow or not, it’s super easy to keep busy as an investor.
You’re at a firm that writes checks, your name and e-mail wind up in investor databases and BAM, Inbox 22,821.
Just because you’re busy doesn’t mean any of it is worth funding—especially if you’re not diversifying your sources. Here’s a handy guide to all the ways you could be getting deal flow and some notes around each.
Lay up.
You’re working with a set of partners at a brand name firm. Even if it’s not a brand name firm, they get deal flow.
They bring you in on the hot “all hands on deck” deals where time is of the essence and you get to add “worked on Series A of [insert future IPO here]”.
Sounds great, except that it’s not really your deal. You can’t really speak to this deal as your own when you’re interviewing for a Principal to Partner role at a top firm.
The founder barely knows who you are and you don’t have a board seat.
You obviously have to do this work to support your team, but you shouldn’t be counting this in your proof that you’re able to generate your own deal flow.
Nor should you count all the sludge that gets pushed from above—the deals partners don’t want to bother taking a look at for the inevitable pass. Maybe you find a pony in there somewhere, but it’s not likely. The key here is that not everything pushed on you from above deserves a full hour—and sometimes very direct e-mail questions and a firm “no” without a meeting can save everyone involved lots of times.
No one likes obligatory meetings, least of all the founders. They know five minutes in when it’s not going anywhere.
Show up.
There are places that founders frequent—everything from demo days to meetups to sponsored dinners to coffee gatherings. Some are wide open, while others are heavily curated.
Here are a few things to remember about these events:
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When it comes to demo days, it’s unlikely that you’re going to show up to the “main event” and see a top quality company whose round isn’t largely spoken for. The presentations are largely a formality. Top firms have already found their way to the most promising companies ahead of time, most likely because they’ve got an inside look or nudge from the people running the show, who will want to say that top VCs are backing their companies.
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One of the most valuable things about these gatherings is the opportunity to connect with other investors to hear what others are thinking and to see where the market is. These are water cooler events and perhaps more of an opportunity to engage collaborators than it is to find something and close a deal.
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Founders talk to each other—just as VCs do. When you show up and make a good impression, your name gets circulated to other founders making their pitch lists. By doing the office hours, showing up at the demo days, shaking hands at the breakfasts, etc., you increase the chance of getting future deal flow down the line, through founder to founder recommendations.
Join up.
Should you spend more time with founders or more time with other VCs—ostensibly ones that have better deal flow than you? If you believe in a 100% efficient market for venture, then better founders will speak to better investors than you before they come to you—so networking with other VCs in the front of the line is beneficial.
The question is why they would bother showing you their best stuff? The last thing you want is to get stuck in yet another, “Do you want any of my bad stuff in exchange for your best stuff?” meetings. Honestly, those were my least favorite meetings in venture—because it was just constantly negging each others “ready for a pass” pile.
What you should be doing instead, to break into high quality syndicates is the following:
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Make it clear that you’re looking in particular areas and that you would be a quick yes/no because you’ve done your homework or have build up an expert or customer network that could be a real value-add.
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Engage people in an interesting conversation about a thesis that leaves people challenged and inspired to do something in a space.
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Tag team across firms with intention. “Let’s go find a solution to the family CFO problem together!”
You don’t get good deals from VCs by asking. You get them by being useful, targeted, and complementary.
Study up.
Become the most knowledgable person on a subject—digging under every rock by talking to all the people a founder would to do the same thing. Ever seen those movies where you pick up the trail of a mystery and some extra behind a counter says, “You’re the second person today looking for that same thing! What is it with ceramic cats playing polo?”
If you act the way a founder would to figure out everything you can about a particular customer problem or wave of innovation, you’re bound to bump into a few founders doing this—often because you start talking to obvious potential customers.
You can also do this by trying to find obvious potential early startup hires or potential founders before they become founders. Fintech investor? How well networked are you at the mid to senior level of early Plaid or Chime employees? In any given space, you could probably predict half of the future founders by poking around the likely backgrounds of people in a good position to become founders.
Sometimes, founders come out of the woodwork, but often they don’t. Want to know the future of e-commerce? Ask Marc Lore who the five people that have worked for him that he would write a check to if they started something. Those are people would would have a view of where that world is going that you should stay in touch with if you plan to have a long term career in venture.
It’s actually how I met Dave Eisenberg, because “I would write a check for anything he did” was pretty much what Andy Dunn said about him the first time we met.
Speak up.
Being a visible investor is an exercise in lead generation. If you really want to back founders before they show up on Pitchbook and Crunchbase, then you need to be somewhat findable yourself.
Not only that, you have to imagine the conversion funnel… How can they find you, but how do they also decide to pitch you specifically after checking out your firm and seeing that you’re not at the top of the org chart?
There’s a whole post to be written about this, but every basic B2B marketing strategy, which is what deal flow generation is (with money as the product) would include generating inbound.
To some extent, this is also where referrals get generated. I’ve often found that you could increase your referral traffic by just letting your network know that you were looking, what you were interested in, and that it was ok to send things even if they weren’t perfect deals. Founders don’t like to burn social capital wasting the time of their cap table, so just making sure they know that all deal flow and referrals are appreciated, and to let them know not to “play VC” by trying to figure out if it’s good or not.
You don’t need to go viral. You just need 50 of the right people to know what you’re looking for.
There’s no single secret to great deal flow—but the best investors treat sourcing like a craft, not a lottery. They combine consistency, curiosity, and community to ensure, not hope, that they’re seeing the best deals.