For a startup investor, getting good deal flow is paramount for success.
Even if your investment process is solid, your risk management is sound, and your luck is (really, really) good, without good deal flow, well, you’re not going to end up a very successful investor. Why? Your investment results will depend on the quality of the opportunities you have — the better the opportunities, the better the expected results.
In fact, one could argue that the art and science of early-stage investing lies solely in a person’s ability to develop their own sources of deal flow. Mark Suster writes about why he doesn’t like meeting with bankers who are pushing deals:
The process of raising capital IS part of running a business. It’s where you get to test your ideas in the marketplace of people who see many similar ideas. It’s where you meet people who have broad networks and even if they don’t invest in you may prove very helpful in your future. It’s part of a process where you learn which investors YOU like so you can decide with whom to entrust as a married member of your business.
For Suster, the investment process is all about determining which entrepreneurs will attract A-level teams to build their visions, who will create lasting, profitable businesses, and which companies manage to attract customers against the odds. The deal flow process, says Suster, isn’t just making an investment decision — it’s part of the investment decision itself.
And now, the million-dollar question: if discovering and meeting great companies is crucial to the angel investing process, how does an investor improve deal flow?
Here are the top 5 ways top angel investors improve their deal flow:
AngelList emerged as the preeminent social network for the entire startup ecosystem as a way for entrepreneurs and investors to connect. It even enables startups and potential employees to find one another. Whether startups are in full-blow fundraising mode or are just going about their day-to-day business, smart investors can find thousands of startups on AngelList. Investors use the site to both track opportunities as well as make connections and introductions to entrepreneurs. Instant deal flow.
While there are many articles written (with entrepreneurs in mind) about how to raise more money on AngelList, there aren’t a lot of posts addressing investors on the social network. The idea is that investors using AngelList can search for companies in certain sectors of interest, with certain co-investors, or that are seeing a certain amount of interest (gauged by the numbers of followers they have). AngelList has an open API, expect to see more applications built on top of the company’s data, making it even easier to track high-potential startups and generate quality deal flow.
With rising interest in startups, more and more accelerators are popping up and doing their best to help launch the next generations of Apples, Googles, and Facebooks. Like the Harvard and Yale of the startup world, 500startups and Y Combinator attract some of the top entrepreneurial talent. Once companies graduate these early stage incubators, they begin looking to raise money. You can attend demo days or find some of these opportunities on AngelList. Little by little, accelerator graduates are appearing on equity crowdfunding sites like OurCrowd and CircleUp.
Here’s a list of some of Israel’s top incubators and accelerators. Here’s TechCrunch’s list of top accelerators in the U.S.
This new site is attracting investors and entrepreneurs alike. It’s a simple concept: users of the site can bubble up new apps or technologies that they think are interesting and comment on them. The entrepreneurs backing many of these companies make their way over to Product Hunt to answer tough questions from the crowd. The result is an incredible conversation around new tech and companies. Many top angel investors and venture capitalist make the rounds every day, looking for fresh ideas. For example, see the product page on Product Hunt for Coin here. It’s almost like a private audience with really smart people discussing the potential for a disruptive product.
The kicker? Like AngelList, Product Hunt has launched its own API, so expect to see new apps and tools building on this great community.
Good ol’ networking
For being in the know, nothing beats rubbing shoulders with the movers and shakers in your local startup investing ecosystem. That’s what Ed Zimmerman recommends in the Wall Street Journal: He addressed founders of companies using their collegiate networks to make sure that they were connected in their circles. This is investors build proprietary deal flow. Networking is also how prolific startup investor, Gil Penchina, broke into the angel community in Silicon Valley and continues to dominate.
The new player on the block, equity crowdfunding, has taken much of the angel/venture capital process, moved it online, and opened it up. Some of these sites, like the aforementioned AngelList, act as marketplaces, letting any company raise money. Other sites (like our firm, OurCrowd) carefully curate the selection of the opportunities in an effort to provide what is concluded to be high-quality deal flow. There’s no charge to join an equity crowdfunding sites — fees are paid only when you invest. Investors can join a variety of equity crowdfunding sites, all on the prowl for the next winning startup.
The Internet has changed the way investors find new opportunities. The days of smoke-filled back rooms where deals were made by a select few will soon be a thing of the past. Our ability to form our own proprietary deal flow is enhanced by new websites, web communities, and online investment platforms.
Good luck and may the force of quality deal flow be with you.