Sharing Deal Flow: a system
Some time ago, I joined a discussion with a group of impact investors, about the best ways for sourcing deal flow, and, which are the best practices for the sharing of deal flow.
The elephant in the room was the tension between keeping a deal to yourself versus cooperating, i.e., competitive edge (access) to investment opportunities vs. co-developing deal-flow.
I believe that the best way forward for impact investors regardless of their stage or scale is by joining resources with other impact angels. My goal is not to be the best impact investor in the world, but rather to contribute to its improvement. In my view, this is best done by working together with other persons. Ergo, please feel free to contact me to discuss the potential sharing of investment opportunities.
Going from one-to-one to a more structured approach
How to more easily share deal flow/resources among impact business angels?
Finding excellent investment opportunities is quite challenging, and at a minimum time-consuming. Besides deal flow, there is a lot more we could share and syndicate (*) to foster opportunities for great companies to connect with great investors.
Besides the time consumed by deal sourcing, it is also difficult and time-consuming to keep track of everybody to know who is doing what?. How most investors find and share deal flow is based more on ‘who do you know’, i.e., your current network, and mainly done in an unstructured manner. Even professionals have admitted that most of their deal flow development efforts are carried out on an ad hoc basis. Most often, via word of mouth, using email or phone.
A common theme for most successful investors is being overwhelmed by their overflowing mailboxes. Receiving a lot of applications but finding few startups that are suitable for investment. This results in a lot of time invested in screening and triage of potential investment opportunities. Furthermore, investors are more likely to invest in startups that they actively identified and sought to the detriment of those that may have just shown up in their email inbox. As with VCs, an intro from another founder never hurts.
Finally, another perhaps obvious but not always applied lesson is not to recommend things that you haven’t done due diligence on.
How to do it? Deal flow sharing toolkit
Email: schedule it to go out on the same day and at the same time every month. “Every month or so, I sent out an email with some info on between four and eight companies. If investors are interested in a company, they let me know, and I do the intro. I vet everyone on the list to make sure they’re an accredited angel or from a fund“.
Slack community: needs to be appropriately managed and nurtured so that people can get access to support, partners, co-investors, and excellent deal-flow from around the world. Some Slack communities regularly share notes on startups, split up attendance to demo days, and collaboratively hunt to fill open roles at each other’s portfolio companies.
- easy penetration with (likely) little resistance;
- essentially becomes a two-sided marketplace within the investor community;
- strong network effects if it catches on; and
- improved pipeline for all (or at least an increased number of companies on their radar).
- a balance needs to be found on the number of internal thoughts and analysis to be shared for each deal vs. just sharing deals ‘objectively’;
- relies on each member of the channel to provide and not only consume;
- possible adverse selection — some investors unlikely to share their top deals if they fear they could miss out on rounds if they do;
- legality — be sure to talk to your lawyer before posting.
Database / Mapping tools- any such devices should have the ‘right filters’ for the identification and screening of the relevant startups that will fit the investment criteria of other investors. There are some databases such as The Impact Investment Network Map, Toniic community; however, access is limited to members only.
Physical meetings – organizing physical meetings such as meetups, theme-based networking events. One of the best practices is to distribute a deal book and to collect feedback about the investment opportunities on the spot.
(*) Many things that could be shared, such as deal opportunities, risks, resources, mentoring, information.
“If you want to go fast, go alone. If you want to go far, go together.”