9. Differentiating in VC: Part II

Hey there,

Welcome to where I write about my journey from a stable Big Tech Software Engineering job to the wild and volatile world of Venture Capital.

In my last post, I outlined how world class portfolio support differentiates a VC and how a SWE can impact this differentiator.

In today’s post, I’ll go over another avenue of impact for VCs: Deal Flow

What is Deal Flow?

Deal flow is the top of the funnel for VC firms, qualitatively it is how many investment opportunities is a firm seeing and the quality of those opportunities.

Why is Deal Flow important?

I feel like a broken record, but Power Laws.

VC isn’t about money, it’s about opportunities.

A single successful successful investment can pay back the entirety of a fund and drive the majority of value creation for the VC and (more importantly) for their LPs.

“So you’re telling me that one lucky investment is all it takes!?” Yep, pretty much 😅 .

Banking on luck isn’t enough though, and

How do we improve our luck and drive up the likelihood we get to invest in that outlier founder?

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How do we improve Deal Flow (luck)?

A VC can supercharge deal flow through the following approaches:

1. Building and Maintaining a Deal Sourcing Platform: Building and operationalizing an internal platform that pools potential investment opportunities can improve deal flow conversion rates. This platform can pull data from various sources, automate evaluation, and integrate CRM tools to keep track of interactions with prospective portfolio founders. Interactions happen via email, on LinkedIn, on socials, and in person - so tracking all this and synchronizing across the investment team can be a major challenge.

2. Leveraging Analytics: Data can be a goldmine for spotting emerging trends and promising startups. By sifting through market data, social media (LinkedIn or Twitter/X/Cesspit/whatever it’s called now), and other pertinent datasets, a SWE can create predictive models that find potential high-growth companies. Scraping is your best friend as a SWE in VC.

3. Networking Tools: Developing tools to enhance networking efforts can also be a game-changer. For instance, a platform that employs AI to match VCs with relevant founders or startups based on set criteria can streamline the deal sourcing process. Enhancing these tools with integrations to professional networks like LinkedIn can amplify their effectiveness.

4. Enhancing Due Diligence: Automating aspects of diligence ensures that vital information about potential investments is gathered and analyzed swiftly. This can include automating background checks, financial analyses, and market assessments, thereby expediting decision-making.

5. Optimizing Internal Processes: Streamlining internal workflows through automation can free up valuable time for VCs to focus on deal flow and building relationships. This includes automating routine tasks, enhancing communication channels, and implementing project management tools to boost efficiency.

These are just some of the strategies a VC can employ in driving deal flow and ensuring they stay competitive in the fast-paced investment landscape.

There’s one more super power in our arsenal… it’s the new hotness we can’t stop hearing about … AI 🤖 

More on this next time!

Signing off and signing zero checks,

SWEdonym