09

Sep 2023

How to Improve Your Venture Capital Deal Flow in 2023

The rate at which company proposals and investment pitches are received is referred to as deal flow by venture capitalists. In this article, we, at Omega project, explain how investors can utilize and improve their venture capital deal flow to increase their funds success.

What is Venture Capital Deal Flow?

Venture Capital deal flow is the method by which a company screens potential startups and the rate at which they approve or reject investing in them. It is a critical component of a company’s value and is frequently influenced by the quality of its relationships and overall reputation among its investors and clients.

VC deal flow encompasses a wide range of facets. Before the actual process of due diligence and investment starts, VCs must go through leads they receive from other funds, clients, advisors, internet networking, and more. Deal flow can come from a variety of sources, but the offers that are most likely to be taken seriously are those from businesses or entrepreneurs in which an earlier investment was successful or where a strong relationship exists. Also, a lot of experienced financiers are likely to pass up unsolicited propositions from unproven firms. Many businesses strive for competitive advantages in the Venture Capital market and the most effective deal flow process.

Why is Deal Flow Important for VC’s

In the realm of venture capital, a company’s top priorities should be to establish a high-quality deal pipeline and increase deal flow. New deals offer brand new investing prospects, and these investment prospects imply possible gains. A company may identify and assess thousands of prospective businesses annually. Therefore, the success of a company is determined on the quality of its VC deal flow, which includes everything from identifying new businesses and contacts to making investments.

Key Benefits of Having a Quality Deal Flow:

More investment opportunities
More structured data
Better informed decisions
More potential gains

What Makes a Good VC Deal Flow?

Investment Scope Communication

Apart from not getting any venture capital deal flow, it is just as problematic to only receive applications that are outside of your investment scope. It is important to not waste time and focus on the right companies for investments. Publishing your investment scope and plan is the ideal approach to draw applications that meet your needs better. It is smart to explain your preferred investment amount, industry, strategy, and process. By publishing your investment scope, you are able to filter out unwanted applications and prioritize legitimate potential venture capital deals.

Intrinsic VC Quality

Intrinsic quality is a very simple Venture Capital measure, and represents the proportion of businesses presented you wish to invest in? It is crucial to assess the intrinsic quality of a company for a potential investment. Do the suggested businesses have solid management teams, sizable markets, quality products, market validation, and growth plans? These are very important measure to determine the quality of a business.

A good management team is essential because people are the key to every company’s success; they serve as the cornerstone upon which the other four pillars may be built. Without this a company will not fulfill its potential. Along with that a unique product is necessary. That being said, it might be an improved solution to a significant issue made possible by technology rather than something entirely new. It needs to be a product that will be demanded by consumers. If it does not add value to customers, the unique product does not matter. Along with that there must be a strong business model and a go-to-market strategy for expansion. These are all important measure to make to determine the intrinsic quality of a potential investment.

Inbound VC Deal Flow

Venture Capital deal flow improves as a VC sees more inbound deals. How highly entrepreneurs regard VC’s as investors is measured by inbound. Inbound leads for new investments, however, are frequently of low intrinsic quality. So essentially, there are two questions that need to be answered. What percentage of the high-quality leads are inbound? And of all the inbound leads what proportion can be considered quality? The best indicator of a VC’s reputation and a means to determine how important that brand is in the venture sector is high quality inbound deal flow.

Proprietary VC Deal Flow

Proprietary deals happen when a single, particular corporation is given the first opportunity to buy or invest in a company. This often occurs when a company has a close relationship with a firm or fits exceptionally well with its investment plan and industry knowledge. The absence of competition within the deal is the primary advantage of proprietary deal sourcing. The likelihood that a bidding war may take place and raise the price, increases with the number of buyers. These kinds of transactions frequently result in far better prices for the company than would otherwise be possible since they take place undetected. A proprietary deal flow is highly valued because of the lack of competition, better prices, intimate relationship, and quicker close.

Validated VC Deal Flow

Although venture capitalists should feel confident in their ability to make their own investment judgments, there is no question that independent validation of a company’s quality is helpful and a good indicator of the quality of VC deal flow. Key forms of validation can come from, but not limited to, co-investors, advisors, key-partners, or the referrer. It is important to have outside opinions to ensure that your own judgement of intrinsic quality is accurate, to guarantee a good deal flow.

How to Improve Your Venture Capital Deal Flow?

Modernize Your VC Deal Flow Stack

In order to increasing your venture capital deal flow, you must first find means to control the data generated during the deal flow process. This can include company data, contact details, relationship information, and stage of the process.

The most effective method to achieve this is to make use of a customer relationship management (CRM) platform, which compiles all of your data into one easy-to-access location and organizes it according to metrics and progress.

By using a CRM, you can prevent errors, missed deadlines, and lost business that may happen when information is dispersed among spreadsheets, notebooks, sticky notes, and emails.

Using a CRM software could also decrease the amount of time invested. Every hour taken off such processes and each redundancy eliminated eventually adds up over time and can significantly shorten a company’s deal flow process compared to its competitors.

Venture capital deal flow

Expand Your Network Modernization

The main source of Venture Capital deal flow has traditionally been conferences and trade events. To expand their networks and create lasting relationships, businesses used to go to as many events as they could and engage in as much conversation as they could. However, the COVID-19 epidemic irrevocably altered the tourism and events sectors. Data service providers, nevertheless, now let businesses to be much smarter and more precise about the trade fairs they decide to attend. Similarly, technology has made it simpler than ever to participate in online forums and find regional events relevant to your investing sector. Examples of this are responding to inquiries on social media, participating in digital events, participating in company pitch and accelerator events as a speaker, advising or mentoring local startups, and attending launch events.

Increasing Online Presence

Building an inbound web presence requires positioning your company as a thought leader and keeping on the forefronts of discussions in your industry. To captivate readers and eventually draw them into your deal flow process, create and curate engaging and informative material for you company’s blog, social media profiles, and email campaigns. Building an inbound funnel that encourages founders, investors, and other prospective partners to come to you for solutions is the most effective method to establish trust as customers become more tech savvy.

Main Deal Sourcing Challenges in Venture Capital

Deal sourcing, also known as deal origination, is the first step in the deal flow process. While many Venture Capital firms still employ conventional inbound sourcing techniques, there are a lot of drawbacks to exclusively relying on intermediary interest and manual procedures.

One challenge of deal sourcing has to do with inbound deal volume. This is very unpredictable and Venture Capital firms frequently have to take a reactive and opportunistic strategy to deal sourcing. Along with that, the small quantity of easily available data for founder-owned businesses makes research exceedingly time-consuming and prone to errors. Lastly, a major challenge can also arise from startups who are actively seeking funding. They are likely to contact many potential investors at once which in return will increase competition and the need for a VC to differentiate themselves. Fortunately, new information, tools, and tactics are driving significant advancements in venture capital deal sourcing for investors.

Final Thoughts

Your firm’s deal flow will increase as a result of the strength of your relationships with entrepreneurs, startups, LPs, other investors, accelerators, etc. This will benefit your portfolio while also improving your firm’s deal flow. For your business to stay competitive, choosing the appropriate customer relationship management (CRM) software is essential. The ideal system will boost team productivity by reducing manual data input, speeding up deal-making, centralizing information, and simplifying communication so that team members can concentrate on building meaningful connections and closing deals.

It is not always easy to find the diamond in the rough. Nonetheless, a high-volume, high-speed venture capital deal flow can provide your company the best opportunity of locating high-value opportunities. The pace, quality, and breadth of deal flows may all be increased for VC firms today using a variety of technologies and strategies. In order to evaluate companies quickly and accurately, actively seek for opportunities that fit their investment requirements, and differentiate themselves from rivals via personalization, businesses are now embracing a new approach to deal making with CRM platforms.