The venture capital (VC) industry is governed by the Pareto principle. Approximately 20% of the companies in a venture capital portfolio return 80% of the value.
“The key characteristic of venture capital is that returns are a power-law distribution,” Marc Andreessen explains. “We see about 3,000 inbound referred opportunities per year and we narrow that down to a couple hundred that are taken particularly seriously…There are about 200 of these startups a year that are fundable by top VCs. … about 15 of those will generate 95% of all the economic returns … even the top VCs write off half their deals.”
In venture capital, it’s all about finding the diamonds in the rough, especially in a market where there are fewer high-quality deals and 42% of dealmakers cite competition as their biggest deal flow challenge.
Keep reading as we dive into some best practices—and expert tips—for supercharging your deal sourcing capabilities.
What is venture capital deal sourcing and why is it important?
Venture capital deal sourcing includes all the steps a firm takes to find—or source—investment opportunities for their fund. During the deal sourcing process, venture capital firms search for and evaluate potential startups to identify the ones with the highest likelihood of growth and eventual successful exit.
Getting a deal to the finish line can be a complex process, and deal origination is just the first step.
According to data from Teten Advisors, the median investor in private companies reviews over 80 opportunities in order to make 1 investment. The same research also revealed that closing a single deal requires an average of 3.1 full-time investment team members—and 20 meetings with management.
"We survey every single one of the meetings that we have. Of the thousands of founders that we meet, we email a survey and try to track the NPS to find out how they felt about the meeting, even though 99.9% of them don’t turn into opportunities," shared Sergio Monsalve, Founding Partner at Roble Ventures during a session at Campfire 2024.
Even though the majority of opportunities don’t go on to become a closed-won deal, having a steady pipeline of promising prospects—and understanding their feedback on your process—can go a long way in driving your fund’s success.
6 tips to improve VC deal sourcing
To get a deal into your pipeline, it needs to match your investment strategy and you need buy-in from the founders or leaders on the other end of the deal. And if your deal sourcing process isn’t optimized, it can impact your ability to close deals down the line.
Let’s look at some tips for improving your deal sourcing—and what advice leading dealmakers have to share.
1. Be transparent about your investment thesis
Traditionally, venture capitalists have kept their investment strategy and thesis under wraps, sharing only minimal vague details.
According to David Teten, a Partner with ff Venture Capital, that model has long been flipped. Many venture capitalists write blogs and are active on social media—even posting analyses of their target investment demographics online.
“These investors have found that openly discussing their investment theses increases their perceived expertise and trustworthiness, and thus generates deal flow,” according to Teten, It’s all about creating a more welcoming brand that is transparent about the type of startups that it wants to engage and partner with.
Increasing transparency around your deal sourcing strategy can also attract founders and co-investors that best fit your investment criteria.
2. Use a data-driven approach
The decisions made in the deal sourcing process can significantly impact outcomes further along the deal pipeline. While there are many factors that impact decision-making, firms have access to a growing volume of data. By taking a data-driven approach, VCs can skip the guessing game and make investment decisions with confidence.
“We are first and foremost trying to identify exceptional founders and companies in our investment domains,” says Aga Szefer, Director of Data Science at Bain Capital. “We are also using data to bring more confidence in the investment process. Our goal is to be really early in identifying founders and companies. We also want to introduce datasets and data sources that are unique or not easily accessible to our investors.”
Incorporating data science into the deal sourcing process helps firms comb through large volumes of opportunities in less time. It makes it easier to implement automation, AI, and machine learning throughout the process. The right metrics can also help your firm uncover high-potential opportunities faster, giving you a competitive advantage.
“It's important for us to get this data at a regular cadence, frequently, and as early as possible,” continues Szefer. The right tools and infrastructure are critical to sourcing and consolidating the data that drives your deal-sourcing efforts. A CRM such as Affinity, can automatically enrich your data with hard-to-find data points and create a centralized database to help you find and identify deals faster.
For a closer look at creating a data-driven tech stack (and when to build versus buy), read the 2025 guide to deal sourcing.
3. Incentivize entrepreneurs with value-added services
VC relationships are a two-way street, yet venture capitalists often wait to offer entrepreneurs value-added services until after the check has been signed.
But the most effective VCs add value from get-go. “Allowing our network to show value pre-investment is a good way for us to help support and win a deal,” emphasizes Sakib Dadi, Partner at Stage 2 Capital. “It’s also a really interesting way for us to gather feedback from our own individual LPs on working with that founder.”
As founders and firms increasingly view investments as a partnership, value-added services can be an important stepping stone to finding the right fit and reaching a closed deal.
Understanding where a company sits against others in its industry is one way VCs can add value through macro-level insights. “It's on my team to structure and put [work] into the process so that we can add value to founders and their teams around where they sit versus their peers,” says Augie Wilkinson, Director of Portfolio Monitoring & Analysis, Bessemer Venture Partners. “We've seen a lot of requests for those types of insights from our portfolio companies.”
4. Take a proactive role in due diligence
A more rigorous due diligence process is often reserved for the later stages of the deal cycle, as VC firms look closely at the business and legal factors that can impact their final investment decision. However, effectively gathering and assessing information upfront can help disqualify non-relevant opportunities before dealmakers spend their all-too-valuable time evaluating them.
The right insights allow VCs to proactively make decisions throughout the process, rather than waiting to discover the critical information that can make or break a deal.
Deal sourcing platforms like Affinity help streamline due diligence early on in the sourcing process by enriching company profiles with deal-relevant insights—such as industry trends or employee growth. This reduces the research required to make informed decisions and gives dealmakers time back to focus on their deal sourcing efforts.
“Affinity has allowed us to turn information and data more easily into action. All of our insights are in the same place, where people can move through the creation of lists, templates, views, etc.” highlights Peter Mitchell, Head of Origination, Future Planet Capital.
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5. Build a global community
Strong relationships are at the core of all successful venture capital investments. One of the most effective ways to build and grow relationships is by fostering a global community.
According to research published by Harvard Business School, although the best-performing venture capital funds are based in three major hubs—Silicon Valley, Boston, and New York—their best-performing investments are headquartered outside those concentrated regions. The early-stage deals located outside the venture capital hubs outperform other investments by approximately 4%, while their later-stage deals located outside the hubs outperform other investments by approximately 5%. It’s almost impossible to know where to invest geographically without being strongly embedded in a global community.
500 Startups is one of several investment arms that has doubled down on forming a global community. Bedy Yang, a Managing Partner at 500 Startups, has explained, “With more than 1,800 investments in over 60 countries, building a global network has been one of the most effective ways of generating inbound deal flow.” The accelerator hosts roadshows such as “Geeks on A Plane” which enables partners to interact, build relationships, and partner with key local players.
However, a global network goes beyond where you source your deals.“Co-investors, founders, industry experts, LPs—all these folk play an important role in our ecosystem. Having a strong network is everything. At times it can really be the dealbreaker for early-stage founders when they’re deciding if they want us on their cap table,” says Amira Ouji, Senior Director of Portfolio Success for Revolution’s Rise of the Rest Seed Fund.
Having a community to lean on can help provide added value to founders and be able to source the best deals. “Early-stage startups are really looking for three things: more money, the best talent, and more customers. Your investors having a strong network is the path forward into those three buckets. When a founder comes to me with requests, I can use my network to source solutions,” Ouji adds.
6. Improve deal sourcing with relationship intelligence
As much as 70% of all deals come from connections in a VC firm’s network, whether it’s from direct relationships or referrals. Nurturing and maintaining the right relationships can help VCs surface potential deals that they may otherwise never be privy to.
Relationship intelligence uses interaction data to help you make the most of your entire organization’s network when finding and closing deals. Relationship management tools, like Affinity, help dealmakers understand the strength of every relationship to uncover the best path to successful deal sourcing and close deals 25% faster.
“Within weeks of moving to Affinity, we were able to easily discover and manage the thousands of entrepreneur and venture community relationships already latent within our team,” says Eric Emmons, Managing Partner, MassMutual Ventures.
How to improve deal sourcing and increase deal flow with Affinity
Successful deal sourcing is the key to accelerating deal flow and building a high-quality VC portfolio.
Let Affinity be your partner in effectively finding, managing, and closing potential investments. Affinity harnesses the power of relationship intelligence, data enrichment, and automation to help you source high-quality deals faster with functionality such as:
- Relationship insights: Understand the strength of every relationship in your firm’s collective network and uncover warm introductions that can help close a deal 25% faster.
- Automated activity capture: Affinity captures every email, meeting, and note directly in your CRM, so you can stay on top of every new opportunity throughout the investment process and seamlessly manage your deal pipeline.
- Automated data enrichment: Automatically capture contact information, company records, and industry insights to save over 200 hours a year in data entry, so your deal teams can focus on sourcing deals.
- Deal flow insights: Get the valuable data and analytics you need to understand where your best deals originate, so you can optimize and streamline your deal sourcing strategy.
Managing your deal flow with Salesforce? Get all the benefits of Affinity's relationship intelligence and automation capabilities with Affinity for Salesforce.
Venture capital deal sourcing FAQs
What is the sourcing process in venture capital?
In venture capital, the sourcing process is how firms find and evaluate investment opportunities. Unlike private equity or traditional investment banking, VC firms primarily invest in early-stage startups, which means dealmakers need to strategically find potential investment opportunities that match the firm’s investment thesis, and effectively evaluate potential value.
How do you source a deal with venture capital?
There are many ways to source a deal in venture capital. Common ways that dealmakers will find opportunities include conducting outreach in their network, attending industry events, networking events, and demo days, researching the market and industry, and building relationships with reputable industry contacts, including co-investors, startup incubators, and accelerators.
What is the difference between venture capital deal flow and deal sourcing?
Deal flow is the process and rate at which a VC firm finds and evaluates potential investment opportunities. Deal sourcing refers specifically to the process of finding those opportunities.
Effective deal sourcing is key to increasing the volume and velocity of deal flow. If fewer opportunities flow through the deal pipeline, a firm has fewer deals to choose from which decreases your chances of securing the most lucrative opportunities.
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