How Investors Can Leverage Resources to Increase Deal Flow
Deal Sourcing and deal flow is a crucial indicator of an investment firm’s health.
What is Deal Flow?
Deal flow is the rate a company receives business proposals and investment pitches from their partners, collaborators, and clients. There isn’t a specific metric to measure deal flow; it’s a qualitative measure that can indicate a firm’s overall health at any given time.
Deal flow is cyclical; while the firm’s internal business practices certainly have an impact, so do the general state of the economy and industry in general. Because of this, it’s important for firms and investors to take advantage of periods of high deal flow, recognizing that it comes in waves.
Jeffrey Glass is a partner at Bain Capital Ventures, one of Boston Business Journal’s “40 Under 40” list, and an Ernst & Young “Entrepreneur of the Year.” When speaking about deal flow, he says, “In one year I see over a thousand business plans and meet on average with hundreds of companies, but ultimately only invest in one to two. …It really is a referral business.” Like most investors, Glass sources most of his deals from other investors.
In order to thrive, firms have to take advantage of every source they have access to such as;
Referrals From Other Investors
Investors are more likely to prioritize referrals from someone they know than from strangers. Investing involves a high degree of uncertainty, especially investments that are in their early stages, like prototypes. If someone the investor trusts vouches for the deal, that reduces the perceived risk.
Referrals From Portfolio Companies
These are especially valuable if:
· The referral comes from a portfolio company that’s benefited the investor in the past. This signals the company understands the investor’s priorities, interests, and areas of expertise.
· The referring portfolio company is referring the investor to a company within its area of expertise. As Mark Bivens, Venture Partner at Truffle Venture Capital, explains, “If a member of one of my portfolio companies recommends I meet someone, I will most likely accept a meeting without hesitation. My portfolio company knows its market space better than I, so if they find a fellow entrepreneur’s startup proposition compelling, this is tremendously valuable insight for me which creates some of the most relevant deal flow.”
Referrals From Service Providers
Per David Nevas of Edison Venture Fund explains, “Lawyers, accountants, banks, consultants… who have worked with us frequently in the past generally have a very strong sense of fit.” That’s why it can be worth your time to build relationships within these networks even if you don’t need the service provider’s help currently. You never know when a relationship will come in handy.
Deal Flow Team
If your firm is struggling to maximize deal flow, reach out to MCMK Tech Marketing Solutions for help. Our experienced team offers tailored marketing strategies and tactics to boost your firm’s reach and success.