Deal Flow is a term used to refer to how you find talented startups to invest in, and how they find you. When talking to fellow Angel Investors, one of the biggest questions when asked how to pick the best startups is how to get the best quality deal flow. Deal flow is an integral part of investing. You can only choose to invest in companies who are in your investment pool, so by getting access to higher quality deal flow, you will in turn receive more access to superior investment opportunities in the future.
You may be asking, how do I get deal flow? The best way to obtain deal flow is by having a positive reputation as a knowledgable person with a track record of success. When you are starting in angel investing it can be difficult to find good companies to invest in, and you will frequently review hundreds of low-potential companies before you find any which could be a success. Once you have a successful startup in your portfolio, more people will come to you as you have proven your skills.
The key to deal flow is to get into a groove. Develop a strategy depending on what you feel comfortable with. If you prefer attending networking events, then do that, but if you prefer connecting on LinkedIn, then do that instead.
A few other key methods you can use to get deal flow are as follows:
Accelerators: One of the best ways to get deal flow is to familiarize yourself with the accelerators and incubators in your area. In terms of investment approach and deal flow they act similar to VCs and Angels. Some accelerators even have investor lists which means that you can be put in touch with some of the accelerator’s promising portfolio companies when they are fundraising.
Subject-matter Expert: Be a subject matter expert in the industries you want to invest in. By being recognizes as an expert, founders building companies in those industries will reach out to you as you have proven expertise in the industry, thus increasing the amount of help you can provide a startup. Some of the ways you can show off your knowledge are: running a blog, hosting a podcast, writing articles for the press, giving talks, attending conferences, teaching classes, work at a startup in that area, or found a startup in that space.
You should also be an expert in your (former) role. If you were a business development director, then it’s more likely that startups who need advice in business development and partnerships come to you.
Demo Days: Attend as many Demo Days as possible. While the competition can be fierce, attending YC’s and TechStars’ Demo Days will provide you with a large pool of great startups to invest in who you can reach out to in an instant.
Get Involved in Startup Communities: Start participating in startup communities which consist of potential founders and perhaps investors, and is centralized around either an area or a focus that you are interested in and want to invest in. You can also start your own community whether it be through a hackathon, a Slack group, a Twitter hashtag, or anything else, assuming you are willing to dedicate time to contributing to and maintaining it.
Founder Recommendations: One of the best sources of deal flow comes from introductions made by founders of your portfolio companies. Your portfolio will consist of many talented entrepreneurs who will most likely know other capable entrepreneurs in your field of interest, hence why the source is so effective.
Back Your Network: If you are just starting, the best source of deal flow is the people in your network. Back the most talented people you know. There is nothing better than having firsthand experience with founders, and if you know them, they are more likely to talk to you. Always support the people you think are doing great things, as they have the highest chances of building a successful business.
Go Network: Go to social and networking events like meetups and commit to being productive there. If you have access to a guest list in advance, find the several people who you think will be the most valuable for you to meet and reach out to them. Have real, personalized conversations regarding the latest in startups and investing. Try to cultivate strong relationships with everyone you talk to, and hand over your business card or email address so you can continue talking after the event.
In addition to that, you can use tools like AngelList and LinkedIn to reach out to founders and investors, as well as publish unique insights as a startup investor. By doing this you can get leads as to who you should know, and be able to schedule meetings with people who can help you out. Also, having a presence on AngelList and LinkedIn is great because it increases the chances that founders see you when searching for investors.
Lastly, I think it’s important that you don’t change your personalities or focuses just to get better deal flow. Stay truthful to yourself and focus on the areas you are passionate and educated about. It’s much easier to get deal flow in the areas you are familiar in than those you pretend you are familiar in.
By having good deal flow, you get access to more deal flow! It’s important to remember that you should provide personal and actionable advice to founders who you reject to maintain your reputation (it especially matters if this startup comes under your radar at a later date).