Deal pipelines make sense of the non-linearity of dealmaking in relationship-driven industries, which, according to Sam Nelson, Founder of SDRLeader, “[is] going to increase your odds of success by about 10x.”
The thing is, relationships and networking are anything but straightforward—yet you still need to know which milestones to hit so you can efficiently close a deal. This is where deal pipelines can help add structure to the dealmaking process, so that your firm can better track the progress of deals and predict outcomes.
Keep reading to learn more about deal pipelines, including which milestones to hit and how to build an effective one for your firm.
What is a deal pipeline?
A deal pipeline represents multiple stages of an investment opportunity, from prospecting to closing.
Deal pipelines help teams track and manage the progress of deals, predict outcomes, and identify potential roadblocks in the process. Each stage in the pipeline represents a milestone in the investment journey, such as prospecting, lead qualification, term sheet, due diligence, and closing.
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What are the stages of a deal pipeline?
While some firms may customize their deal pipeline based on a variety of industry or market factors, there are some standard workflows and milestones that help most teams track deal management progress.
1. Deal origination
Deal origination often involves networking—and lots of it. During this deal sourcing stage, General Partners (GPs) and/or Associates attend sector conferences, engage with posts on social media, and network with top introducers and other VCs to find opportunities they can evaluate against their investment thesis.
2. Deal qualification
Deal qualification, or screening, is the process of reviewing opportunities. During this stage, GPs and Associates assess business model viability, management team experience, and market potential to make sure they align with investment criteria and risk tolerance. This process is rigorous and helps identify high-potential investments while mitigating risks.
3. Schedule a pitch meeting
During this stage, firms schedule pitch meetings with founders. The pitch meeting is when the firm asks detailed questions, assesses the company’s preparedness and viability, and determines whether the opportunity truly does align with their investment criteria. The ultimate goal of the pitch meeting is to decide whether to proceed with further due diligence and potentially invest in the startup.
4. Deliver a term sheet
If a company delivers a great pitch that aligns with a firm’s investment thesis, they receive a term sheet. The term sheet outlines the preliminary terms and conditions of a potential investment, and it forms the basis for negotiation between the VC firm and the company. This step sets clear expectations and attempts to decrease uncertainty.
5. Due diligence and negotiation
After a term sheet is delivered, due diligence begins. This is when GPs review a company’s business and financial model in greater detail. They may consult with industry experts, other VCs, or customers to get answers to specific questions that couldn’t be answered during the deal qualification and pitch stages.
6. Close the deal
If due diligence goes well, the deal is closed-won (or closed-lost if it doesn’t). Closing a deal means finalizing the investment transaction through the execution of legal agreements and the transfer of funds. This stage confirms a commitment to the investment and marks the beginning of a firm’s active involvement in the company's growth and development.
7. Portfolio company onboarding
After the deal is closed, it’s time to onboard the portfolio company so that the firm can best support them. This is when the firm builds strong relationships with the founding team using open and transparent communication. At this stage, firms are figuring out how to use their extensive networks to offer introductions to potential executive team members, customers, partners, and eventually additional investors.
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How to build an effective deal pipeline for your firm
You can automate parts of your deal pipeline (more on that below), but not all of them. Your deal pipeline is essentially an actionable bird’s eye view of all the potential relationships that can lead to a deal, and the different stages of the process.
Here’s what you can do to make that process run more smoothly:
Decide what your deal pipeline will look like
Odds are, your deal pipeline will look a lot more complex than the seven steps outlined above. Based on prior successes, you’ll be able to flesh out your deal pipeline to include more granular steps, such as sophisticated opportunity scoring, deeper due diligence practices, and additional strategic alignment assessments.
Many firms improve deal flow during the prospecting stage by specifically focusing on warm introductions, which are proven to help close deals 25% faster than cold outreach.
Crunch the numbers
Targets can help your firm set expectations, determine what success looks like, and allocate resources accordingly.
For example, to calculate the number of deals you need in your pipeline, work backwards—start with your latest full quarter’s conversion rate and the number of deals you had in your pipeline. For example, if your firm needs to close five deals quarterly but you only closed four, you know you need 20% more deals in your pipeline for next quarter.
Keep each deal on track
Keeping a deal on track means it’s always moving toward a closed-won deal. There are several ways you can do this, including:
- Centralizing firmwide prospecting efforts: Use a CRM built for private capital (or a CRM integration) to automatically pull in existing information from every GP and Associate’s inbox, calendar, and browser, so you have complete firmwide visibility and can streamline your entire deal flow.
- Using internal referrals to make warm introductions: Sam Nelson, Founder of SDRLeader, says, “Figuring out the right contacts is crazy important. So anything you can do to make sure that you’re focusing on the right people is the highest return on investment.”
- Diligent follow-up mechanisms: Whether you’re using AI functionality to assist with writing follow-up emails or not, it’s just as important to align with your team on your follow-up strategy as your initial prospecting strategy.
How to automate your deal pipeline
Deal pipeline management is commonly wrought with manual data entry and human error—but it doesn’t need to be. Affinity automatically captures and manages your network across founders, investors, and others who can get you that warm introduction.
Manage your deal pipeline and save hundreds of hours by using Affinity CRM and the Affinity iOS mobile app to automatically centralize and access firmographic data such as industry growth trends, market share, executive experience, etc. and relationship intelligence such as email and meeting interactions, firmwide connections, overall relationship quality, etc.
Learn how to put theory to practice with Affinity’s 2024 deal sourcing guide for venture capital. You’ll find out how to:
- Become a data-driven dealmaker
- Elevate relationships to source deals
- Maximize your use of technology
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Deal pipeline FAQs
What is a sales pipeline?
A sales pipeline is a visual representation of the stages that prospects move through in the sales process, from initial contact to closing the deal. It helps sales teams track and manage the progress of each prospect, identify potential roadblocks, and forecast future sales.
What are the 7 stages of a deal pipeline?
The seven stages of a deal pipeline are lead generation, lead qualification, scheduling a pitch meeting, delivering a term sheet, due diligence and negotiation, closing the deal, and portfolio company support and onboarding.
What's the difference between a CRM and a deal pipeline?
A customer relationship management (CRM) platform is a database of all prospect and customer interactions throughout the sales and customer lifecycle. A deal pipeline exists within a CRM, and it tracks the stages of individual sales opportunities from initial contact to closing.
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