How can you attract better deal flow as an investor? There is a clear relation between the volume and quality of deal flow a business angel or early stage VC is able to attract and its potential performance. It does not matter how many companies one has founded, how many investments one has made, or how strong investment process or sound risk management is. Even if you are one of those super lucky “hot shots” – having had one or two nice exits, true success over time does strongly depend on the quality of investment opportunities you get your hands on and there are some simple strategies to master the art of attracting the best deal flow possible for your strategy.
Being an investor is hard work. The only difference to classical asset classes – such as equity, fixed-income or fund investments – is the type of work you need to do. Attracting deal flow is the fundament of a solid portfolio and it could be compared to attracting talent by top-tier HR professionals.
Agreeing on a valuation is one of the most critical point for the investor-startup-relation. We developed a startup valuation tool to help with that.
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#1 Communicate your Investment Scope
The worst thing, besides attracting any deal flow, is if you only receive application out-of-scope. Every application should be looked into and answered individually, as this will influence your reputation in the community, but you do not want to waste your time and concentrate on time for the right companies, right? The best way to attract a better fit of applications is to publish your investment scope and strategy, where you explain:
- How much do you invest?
- How many investments are you willing to make per year?
- Investment strategy (industry, stages, regions)
- What type of investor are you? (hands-on, co-invest (syndicator), financial investor …)
- Investment process: hard criteria (must haves) and soft criteria (nice to haves)
- Average response-time
- Current portfolio & track record
Don’t forget to explain who you are and why startups should work with you. Besides the smartness of money – driven by your personal experience, skills, network and such – synergies to other portfolio companies may be highly valuable.
There are multiple ways to publish your investment scope and investors profile. One good starting point is a website of your investment company, if you have enough resources to attract significant traffic. If you are lazy writer, I would recommend occasional blog posts about your experience, latest success storys, digital trends, technologies and startups of interest and personal experiences on platforms like “Medium“, where you profit from a better reach. You may also list yourself at online platforms for deal flow like Dealmatrix, AngelList and Crunchbase. Some of these platforms are free, others offer additional services, like date, process and investment tools, additional deal flow and other management tools to make your life easier at a small cost.
#2 Play your Network
Personal connections are very important, probably even the secret to most successful investors. If you consider building a portfolio, you will always need to partner up with other investors to leverage your personal skills and to diversify you financial risk – and this is the same for all professional investors, therefore they are usually open to talk about co-investments and collaboration on deals. It is smart you surround yourself with top-investors and maintain these relations with heart.
There are many ways to engage and widen your networks. One way is to become a member and attend meetings of local angel groups. Be aware that there are a number of different ways these groups work. Some charge member fees (smaller and higher), others take a success fee at closing of promoted deals and participated in terms of carried interest and others are free in order to foster angel investments within a region.
#3 Be active within your Startup Community
Almost every day there is an opportunity to engage with the startup ecosystems. There are meetups, conferences, demo days of accelerators and incubators, launch events, speakers-nights at co-working centers and investors meetings – there are even so many that you can easily be overwhelmed by the possibilities.
We highly recommend the following events, as we believe they are among the most important ones for business angels, active in the European startup ecosystem (in alphabetic order / not ranking by importance):
- Bits and Pretzels – Munich – (Get nice present at the event by using the code Partner_NW17)
- Family Day (High Tech Gründerfonds)
- IdeaLab! – WHU Campus (DE)
- Mobile World Congress – Barcelona
- NOAH – London
- Pioneers Festival – Vienna
- Slush – Finland, Helsinki
- Tech Crunch Disrupt – London / Berlin
- Web Summit – Lisbon
- Full list of events on www.businessangelinstitute.org
Events like those above are always looking for great speakers and judges for pitch or business plan competitions and mentors. Accerlators an incubators tend to work closely as well with investors, as they technically need a great pool of advisors, mentors and early stage investors to work with startups within their programs – it is always worth approaching these organizations and apply for such an active role. Active engagement in the community will build a strong reputations for you and will make to approachable to startups and naturally turnout in better deal flow presented or forwarded to you.
#4 Active Scouting
In case you are interested in true high-tech innovations, I highly recommend to engage with technical and bio-engineering universities (depending on your investment focus) and actively scout for startups through a more specialist environment. Another very European approach is to work closely with state-driven high-tech supporting institutions such as AWS in Austria or KfW in Germany. It is common for investors in this field to approach startups at early stages and pitch them as an investor. Some startups in this field are like raw diamonds and need to be scouted!
If you are transparent about your interests and your offerings, enjoy working with young and hungry entrepreneurs and are willing to spend time and effort within your ecosystem, better deal flow will come to you for a fact.
If you have limited time or simply not focusing solely on startup investments you may participate as a qualified investor from becoming a limited partner (investor) of a venture fund or outsource tasks like screening and transactions to professional service providers such as we are. We are trusted deal flow partners and provide professional analyst services for early stage investors, corporates and SMEs, as well as corporate innovation contests like www.innovation2company.wien, with a very tailored and scouting driven approach to our clients.