Top tips to increase venture capital deal flow

Venture Capital firms like yours evaluate thousands of investment opportunities per year. Around 60% of those will come from leads found in your network—former colleagues, work acquaintances, or other trusted sources. And with the average firm investing in fewer than 1% of the opportunities they see, those referrals represent a valuable source of deals. 

With only so many hours in the day, it makes sense that the most efficient investors prioritize trusted referrals. Rosalie Seriese, an Investment Associate at AngelHubVentures, describes a common reality for investors: many don’t even reach 1%; they only invest in 0.5% of all deals they see. 

While there may not be a one-size-fits-all solution to increasing deal flow and deal sourcing efforts (sometimes using deal sourcing software to do so), maximizing referrals should be a cornerstone of your deal flow strategy. In this article, you’ll learn best practices for building high-quality deal flow, establishing proprietary deal flow, and using new technologies to get (and stay) ahead of the competition.

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What is deal flow?

Deal flow is a term used by venture capitalists, angel investors, investment bankers, and private equity firms to describe the quality and quantity of investment opportunities available to them.

Building consistent deal flow helps firms choose the best possible investment opportunities. This is because deal sourcing is a combination of intent and volume—selecting potential investments depends on having a large pool to select from.

6 tips for sourcing better deals to build better venture capital deal flow

While more prominent VC firms can rely heavily on inbound deal flow, outbound work is becoming a core function for deal teams as they focus on identifying more high-quality opportunities faster. Here’s how your VC firm can increase deal flow by leaning into the power of referrals through an extended network. 

1. Source referrals from other investors in your network

It’s a good idea to prioritize referrals over other inbound requests, especially for riskier pre-seed, seed, and early-stage startups. Getting a stamp of approval from a trusted member of your network increases the likelihood that a potential deal is worth spending time on.

‍Sourcing new deals from your network is essential for increasing deal flow, and the value of these referrals often depends on the strength of the relationships between you and your connections. Stronger connections are more likely to understand your investment thesis, investment strategies, and your key objectives.

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Because of this, their recommendations can be more tailored to your team. Getting these qualitative insights can be extremely important for early-stage investments when data is limited or not yet available. 

Sakib Dadi, Vice President at Bessemer Venture Partners, explains the importance of this human-to-human connection: “Oftentimes the most impactful relationships, the ones that help me the most with deal flow, come from talking to the person and getting to know them well.” 

By adopting a long-term perspective, you can build strong relationships that yield high-quality referrals and investment opportunities. Alexander Ross, General Partner at Illuminate Financial, describes how cultivating meaningful relationships is crucial for sourcing high-quality deals effectively: “For us, it’s definitely about depth. If I think about what success looks like in terms of our relationships with large strategics, it’s 10-15 very senior change agents within an organization who actually care about innovation and adopting early-stage solutions—versus necessarily quantum of new contacts.”

2. Talk to your portfolio companies about other founders

Portfolio companies are an excellent source of recommendations about other rising startups in their own network. You may often be the expert advisor for your portfolio companies, but they have access to inside information that can be invaluable to your team. 

For one, they know what you’re looking for. Your successful portfolio companies understand what you value in them, and they can share insight into potential investment opportunities or startups that they see as similar to themselves. Ideally, they’ve also chosen you as a business partner because they need your specific expertise to support their business. That dynamic becomes mutually beneficial when you can lean on your founders’ expertise in their industry. They’re subject matter experts too, after all.

“My portfolio company knows its market space better than I do,”  

Mark Bivens, Venture Partner at Truffle Venture Capital, speaks about his own experience, “If a member of one of my portfolio companies recommends I meet someone, I will most likely accept a meeting without hesitation. My portfolio company knows its market space better than I do, so if they find a fellow entrepreneur’s startup proposition compelling, this is tremendously valuable insight for me which creates some of the most relevant deal flow.”

This is especially helpful when you’re doing outbound work. Your existing portfolio companies can give you a unique perspective on historically under-invested areas and markets you’re unfamiliar with.

3. Ask your service providers for their expertise

Service providers (lawyers, banks, brokers, accountants, more traditional salespeople, etc.) are an often-overlooked source of referrals. They’re valuable because, as non-investment professionals in your firm’s network, they’re also likely familiar with the industries you’re investing in. 

With their parallel knowledge and expertise, service providers have access to a broad sample size of trends and connections that can be useful for both deal sourcing and due diligence. Keeping these relationships warm means you can quickly tap into them when needed.

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One way to automate this is to set up reminders to check in with your service provider on their book of business. By proactively staying on their radar, you can increase the chance that they’ll reach out if they start working with a new client in your wheelhouse.

4. Network your way to high-quality deal flow

The previous three tips were all about drawing on your team members’ existing professional network, but expanding that network is just as valuable. Networking events, startup pitch nights, industry events, and accelerator demo days provide direct access to some of the best up-and-coming companies. While many of these events have shifted online,  the most successful VCs are adapting and focusing on digital networking. 

Taking the stage yourself can also help you stand out to prospects and startups in a way that provides value to them. Collaborate with event organizers who can help you get speaking gigs—particularly at events in verticals that line up with your investment thesis. Some events will let you host “office hours” to connect and offer advice to founders, startups, private companies, and early-stage ventures.

Once you’ve built these new relationships, it’s crucial for your VC firm to manage them effectively. Adam Shuaib, Partner at Episode 1 Ventures, highlights how tools like Affinity can help streamline this process: “Affinity has been a big part of helping us manage our network. When you can have it in such an explicit way, it’s very easy to track where the holes are, what you need to expand upon, and it’s become a much bigger focus for us recently.”

Pitch competitions are another great opportunity to gain exposure for your VC firm. These competitions often need judges and if you can partner with an e or act as a mentor in that capacity, you’ll be the first point of contact for the attending founders. 

Finally, hosting small private networking events or meetups is another value-driven way to help you build relationships with co-investors, VC firms, and other important players in your ecosystem. 

5. Increase your online engagement

VC firms that were able to adapt to dealmaking during COVID-19 lockdowns quickly took their deal and relationship management online. This trend has continued even as a more hybrid event and networking model has become the norm. 

Showcase your expertise and tell the world exactly what kinds of deals you’re looking for by publishing blog posts or LinkedIn articles, hosting a podcast, developing a social media presence, hosting webinar panels, or sending out a useful newsletter on a topic related to your investment thesis.

Sharing your own content isn’t the only way to increase engagement. Subscribe to newsletters, follow other venture capitalists, and join conversations online to nurture presence and authority in your most important circles. Remaining active online, sharing insights into your investment process, and connecting with new people will help grow your network organically over time.

 6. Lean on data to make better decisions

The wealth of contact and deal information you’re gathering from outbound sourcing and relationship building needs to be measured so you can understand its impact on your business. “Data-driven investing” has become a buzzword as platforms like Pitchbook and Crunchbase mature into must-have pieces of the VC tech stack. Alongside this, AI and machine learning continue to gain relevance for investment teams across VC firms, private equity firms, and investment banks. 

The reality is that your team has access to more metrics than ever before. This means there’s more information available to make better informed investment decisions; it also means there’s more noise, so you have to focus on finding the right signals.

​​Alexander Ross, General Partner at Illuminate Financial, shares the types of data sources his VC firm evaluates at the early stages of a deal: “Right at the top of the funnel, we have a number of data sources, which typically tend to be signals like number of employees—so growth in the number of employees, mentions of certain keywords, or certain partnerships being announced—to help refocus or bring our attention back to businesses that sit on our monitor list.”

Learn more about how investors are leaning on data enrichment to make better decisions faster.

To help your team move faster, you can use the data gathered from all these sources to quickly source investment opportunities that align with your firm’s goals. Guide how you use the data by setting clear objectives and establishing metrics to measure against. 

With a smaller pool of high-quality investments on the market, better defining your investment targets, tightening your due diligence processes, and focusing on more relevant deals can keep your firm ahead of the competition. 

Supporting your deal flow with technology designed for dealmakers

Things invariably get complicated as your team grows its network, increases the places it actively sources from, and gathers more data to inform investment decisions. Analyzing your current deal flow management and process can highlight opportunities for places you can optimize to move faster and more effectively. 

Does your team hastily scribble phone numbers on sticky notes and the backs of scratch paper? Maybe you have a large, traditional CRM that no one really uses? When this information only lives in the minds of an individual on your team, data silos prevent your firm from working together effectively to move deals through your pipeline.

“We knew that we wanted to build up a tech stack that reflected how we did business in a relationship economy.” 

Technology can help, but there are hundreds of tools available in the market for VC tech stacks. As a result, many teams are trying to find ways to consolidate and connect their existing tools to streamline their deal workflows. A good way to approach this is by building on a tech foundation that works the way you do. 

As Sven Rossman, Chief Investment Officer at ABACON CAPITAL puts it, “We knew that we wanted to build up a tech stack that reflected how we did business in a relationship economy.” 

ABACON CAPITAL and other leading firms are choosing to invest in relationship intelligence platforms that give teams a single place to store and access their collective network information. Acting as contact and deal management platforms, they also provide insights about that organization’s shared business network to drive how dealmakers spend their time finding, managing, and closing deals.

By connecting workflows and technology through a platform designed to help you find, manage, and close deals, your team can capitalize on its growing network and accelerate its deal flow pipeline. 

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