Despite the economic upheaval caused by COVID-19, venture capital (VC) funding continues to surpass all previous records. However, it’s not because VC firms are funding a higher number of deals; in fact, the overall deal count hasn’t increased during the last 6 years. The reason behind this increased funding is that the value of the deals has improved, and VCs are now finding and funding more profitable transactions than before.
Source: Crunchbase News
Check out our top four best practices for sourcing venture capital deals, and learn how your team can help improve your firm’ profitability.
1. Define your investment thesis to attract ideal transactions
When VCs miss good deals, it’s often because they’re spending valuable time and resources chasing incompatible ones. Avoid this pitfall by improving your investment thesis.
An investment thesis is a set of values against which you compare business ideas. The more aligned an entrepreneur’s venture is with your thesis, the more viable — and, hopefully, the more profitable — the opportunity will be. Having a strong, established thesis will not only save you time when sourcing venture capital deals; it will also produce better deals at the sourcing stage and improve your overall deal flow.
A well-defined venture capital investment thesis can also help you compare potential investments to a specific market. As you follow news and trends in the venture capital industry, you’ll develop a stronger opinion on the market you want to target. Research rising companies and brainstorm what your capital and connections can do for them. You can also use DealCloud’s DataCortex to access valuable insights from metrics providers — including PitchBook, FactSet, and Preqin — to research the industry in which you plan to invest.
Remember: Many startups have fizzled due to investors jumping in without first defining their investment theses. Learn from their mistakes and be careful not to take on any deals that misalign with your firm’s thesis, as they will bring little to no value.
2. Nurture new and existing contacts with content
When it comes to sourcing venture capital deals, managing both current and new relationships is essential. Once you’ve established the market you want to target, network with executives and business leaders to build relationships in that industry.
The way in which you communicate with your target market can determine what kind of relationship you’ll have with them. Carefully choose your messaging tone and cadence as well as the communications method, as this will influence the type of entrepreneurs and investment opportunities you attract.
One of the best ways to communicate your intentions and source better deals is to create and publish relevant content consistently. Publicize your experiences and lessons learned about sourcing venture capital deals, and be sure to stick with content relating to your unique investment thesis. Your current contacts can then repost your insights to a larger audience — and potentially introduce you to new connections.
To build strong relationships with your new connections, consider collecting inbound email addresses to message contacts, and use a marketing solution like DealCloud Dispatch to sync your email with your relationship management platform. This will allow you to easily reach as many contacts as you need at any time.
Efficiently managing new and existing contacts and conversations is crucial to maintaining strong relationships; however, a disorganized workflow can put these relationships in jeopardy by causing confusion and slowdowns within your firm. To prevent this, use DealCloud’s venture capital deal management and sourcing technology to keep track of your network contacts and any activity with those contacts — all in one place.
Users can track deal activity, view deals by source type, and organize network contacts with the Sourcing Network dashboard.
In addition to keeping track of every relationship, DealCloud users can categorize, tag, organize, and report on their relationship data in any way that they choose. From tracking your executive network pipeline to looking up funding history data, you can quickly find the information you need to help you make better decisions.
3. Use deal sourcing intelligence services and solutions
Gear up with tools and services that help you source profitable investment opportunities, provide valuable information, and outsource the work entirely. A pipeline management solution like DealCloud lets you easily access and leverage any field or data set, regardless of fund size or investment preferences.
In addition to prospecting and sourcing networks, DealCloud’s Network Coverage dashboard allows users to view deals and introductions by sources and date. VCs can quantify the value of their collective network and measure the effectiveness of their outreach efforts in a single view.
Users can track their activity across their network of contacts in DealCloud.
Dealmakers can also use DealCloud to track prospecting and origination activity — including meeting type or communication — and monitor target companies by stage.
The above shows the Prospecting dashboard, which can help track deal sourcing.
Empower your team with integrated tools such as SourceScrub that can find and automatically collect real-time private company data. Integrating third-party data providers within a single source of truth can give your team time back to focus on high-touch tasks like relationship building and the due diligence process.
DealCloud also offers a robust desktop and web application as well as a mobile app, making it easy for you to source new deals from wherever you are and keep pace with the fast-moving venture capital landscape. Schedule a demo to learn more about our deal sourcing tool for venture capital firms.
4. Attend events and join networking groups to grow your referral base
More successful deals originate from relationships and referrals than from any other source. An HBR survey of nearly 900 VCs concluded that “…more than 30% of deals come from leads from VCs’ former colleagues or work acquaintances.”
When sourcing venture capital deals, you first must source relationships. Attending events and joining communities can help you do exactly that.
Attend industry events
The connections you make at industry conferences and networking events could potentially lead to your next big deal, so it’s important to collect their business cards and contact information. But how do you ensure you don’t lose this data and can easily find it again at a later time?
DealCloud’s business card scanner functionality on the mobile app directly scans and imports contact information into our CRM. Once you’ve added your contacts, you can use the DealCloud Outlook add-in to track all communication activity when planning and conducting a meeting or call.
Join venture capital–focused groups on social media
By joining industry-specific groups on LinkedIn and Twitter, you’ll have insight into the top players and topics in the industry. You can also use these groups to network with colleagues, who can help you determine what companies to target next.
To find ongoing discussions about sourcing venture capital deals, make sure to follow:
- Relevant hashtags — Each day, consider searching Twitter for hashtags like #venturecapital, #startups, #entrepreneurship, #business, #privateequity, #vc, #funding, #investing, and #venturecapitalist. It only takes a few minutes to discover what related topics are trending on social media and who is actively contributing to these discussions.
- Influencers — For maximum visibility, be the first to comment on popular VCs’ threads. Use the hashtags above to look for Tweets or posts with the most engagement and follow those authors. Be ready to jump in on their next post with your thoughts.
- Email newsletters — Did you know you can reply to most email newsletters? VC commentators love to hear from their audience members, so respond to continue the conversation they initiate.
Create and cultivate your own community
If you feel lost or overwhelmed by the many online VC communities — or if you can’t find one specific or relevant enough for your focus of interest — then consider making your own. Start by hosting your new community in a simple and private Facebook group. If it grows, migrate to a more secure, elite channel like Discord, Slack, or Mighty Networks.
As you cultivate a community, consider including more than just entrepreneurs. The wider of an audience you have, the more diverse ideas you’ll receive.
For more profits, source better — not more — venture capital deals in 2022
Firms that want to source better venture capital deals need to wasting time on mismatched, untenable businesses and instead clarify their investment theses. Use the best services and tools so you can stay organized and spend your valuable time wisely, and grow your network to meet more relevant founders who have more viable ideas. Although you’ll source fewer deals, the quality of those deals will improve, increasing your overall success rate.
DealCloud’s enterprise-grade, cutting edge, single-source technology has been refined to help you with sourcing venture capital deals and executing on those deals more effectively. By using DealCloud’s advanced software, you can find the deals that will provide the most value for your firm.
Contact us today to learn more about how DealCloud’s venture capital deal management and sourcing technology can help your firm accelerate its success.