Hi, this is Weekend Fund! Welcome to the 14th edition of Signature Block, a newsletter for fund managers. If someone forwarded this to you, subscribe here to get the next one in your inbox. 

Having strong deal flow is a necessary condition to making great investments. You need to be able to see high-quality opportunities before picking, winning, and investing. 

Deal flow has two elements: quality and quantity. For each investment a VC firm eventually closes, a firm considers more than 100 opportunities on average according to a Harvard Business Review survey. Given the low “conversion rate”, investors need to review hundreds to thousands of startups during the duration of the fund’s life. 

In this post, we cover the main strategies to get deal flow as an investor, including techniques and tips shared by some experienced fund managers.

If you only have a few minutes, here are some key takeaways for how to cultivate meaningful deal flow:

• Lean into existing networks: Sourcing deal-flow from your immediate network allows you to leverage the reputation you’ve built with them, but you’ll likely need to expand beyond that to avoid missing out on opportunities outside your network. 
• Multiple sources of deal flow will expand market coverage: Having a multi-pronged deal-flow strategy prevents reliance on a single source of deal flow and leads to greater coverage. 
• There is no right way to get deal flow: Exclusive access and unbeaten origination paths requires playing into your strengths, doing what comes naturally to you and building your brand. 

Shoutout to Andreas Klinger (Remote First Capital), Declan Kelly (Foreword VC), Eric Bahn (Hustle Fund), Jenny He (Position Ventures), Julia Lipton (Awesome People Ventures), and Julian Shapiro (Julian Capital), Mark Scianna (Forward Deployed VC), Maya Bakhai (Spice Capital), and Leo Polovets (Susa Ventures) for contributing to this post.

Deal flow sources 

Sources of deal flow can be categorized into two buckets: inbound and outbound.

Inbound deal flow might be driven by brand (as a successful founder, operator, creator, etc.), your network, content you create or all of the above.

Outbound deal flow may come through scanning networks for founders, programmatic search, community building and attending demo days that provide unique insights and access.

Inbound

While inbound deal flow – from founders reaching out directly or referred by a first degree connection – may seem passive, it’s often the result of a strong network, brand, or reputation.

We cover the following inbound sources below: 

• Existing network 
• Co-investor relationships 
• Founders support
• Thesis-driven sourcing 
• Content
• Brand

Many established funds rely heavily on inbound deal flow, leveraging the reputation and network they’ve built over several years. The volume of inbound opportunities may be minimal for new GPs but with time an investment in the brand (what makes you unique), reputation (why people want to work with you), and network (who you truly know), can make a compounding, positive impact.

Relying solely on inbound from your network might lead to more homogenous investments and make it harder to build a diversified portfolio.

Your existing network

Venture is a network-driven industry. If you’re a new fund manager, letting your network know that you’re investing out of a fund now can lead to more inbound deal flow. If you're a more established fund manager, you’re likely already getting founder referrals from your network. 

While your existing network is a good place to start, solely relying on it will lead you to miss out on investment opportunities outside your network. 

Why Brianne Kimmel recommends leaning into existing networks

“Lean into existing networks: Venture capital is an industry built on trust and reputation. Your reputation with colleagues and peers at other companies matter a lot, especially as they leave to start companies or you want to recruit them to your portfolio companies”

— Brianne Kimmel (Worklife) 

Building co-investor relationships 

Building relationships with other investors is one of the best ways to expand your coverage across the market and increase deal flow. This can be especially effective for emerging fund managers as funds are often small, collaborative, and built around specialized networks. Collaborating with other investors can involve introducing other investors to deals, sharing notes on active investment opportunities, or sharing a snapshot of one’s pipeline. 

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Why Declan Kelly of Foreword VC invested in building his tribe early

“As emerging managers don’t typically have the same resources available to them as established funds, it’s helpful to find your tribe of peers early. These can be other investors, founders, angels – basically people with a similar focus, who you can comfortably collaborate and share your pipeline with, and vice versa. Having a trustworthy peer group helps maximize exposure and increase your deal coverage. If they are also benefiting from access to your pipeline, it’s more likely you will be kept top of mind, and it can become an incredibly valuable extension of your sourcing efforts over time.”

— Declan Kelly (Foreword VC) 

Founder support

Many investors emphasize the ability to support founders in their portfolio. While this is necessary to be a good partner to portfolio founders, helping founders before an investment is made can improve deal flow. 

Helping founders ideate, reach key customers, or connect with other investors creates goodwill. Jenny He advises founders with positioning and communications strategy. Julian Shapiro helps founders hone their story and GTM strategy. The more genuinely helpful you are to founders, the more likely they are to refer other founders in the future. 

How Jenny He @ Position Ventures adds value to founders in a unique way 

“At Position Ventures, we invest in founders and help them with their positioning and communications strategy. We have found that our highest quality deal flow comes from founder referrals so we are constantly creating opportunities to add value to these founders early on and before we invest to build the relationship. For example, based on the asks and feedback from founders, we’ve rolled out a series of workshops, webinars, and events that help founders with positioning, media training, thought leadership, earned media, and more.“

— Jenny He (Position Ventures) 

How Maya Bakhai @ Spice Capital built her founder flywheel 

“The best way to build a founder referral network is by being actually helpful to founders because they will talk about you. The best way I have seen this done is when VCs offer up resources before there's a financing round. Becoming a power user of a founder's product/service, using your distribution channels to market their product on the founder's behalf (Twitter, Newsletter shoutout), offering up fundraising intros, giving feedback on fundraise materials, understanding their customer and proactively helping with BD, referring candidates.......all these actions built trust before you even ask to invest and creates your founder flywheel.”

— Maya Bakhai (Spice capital)

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How Leo Polovets @ Susa Ventures provides value to even founders he passed on

“One underrated sourcing technique for me has been to send good feedback emails to founders if I pass on their funding rounds. I think most founders appreciate this feedback because it's rare to get much more than ‘it's too early for us’ from most VCs. And if my feedback is helpful, then I often get pinged by founders the next time they're raising, or when their friends are raising.”

— Leo Polovets (Susa Ventures) 

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Thesis-driven sourcing 

Some investors are more thesis-driven and deploy a more targeted approach to sourcing.

The more educated and credible an investor is around a particular thesis, the more likely they are to find, attract, and evaluate companies that match the focus. Reading and learning about a particular space may surface promising investment opportunities, but it can also be beneficial to share one’s perspective to become a magnet for founders building in the space.

Some investors, including Y Combinator’s well-known RFS proclamation, explicitly announce their investment focus and reasoning.

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How Andreas Klinger finds founders who work already on his “request for products”

“I’d recommend having a list of product opportunities you want to invest in, and finding teams who already work on them. The best approach for this is to try to come up with products you would love to build yourself.

Pick trends, technologies, shifts, and think through what changes, the possibilities they will enable, and what second-order effects they will cause. Then look for companies in this area, talk to them, and understand your blindspots. Sooner or later you realize gaps in the market and develop a thesis on how to leverage them. 

This approach step-by-step builds a list of opportunities you think are possible, venture-backable or sometimes not. Frequently you find interesting companies to invest in while researching, sometimes you are just primed and ready for a later moment. As an example, I published one list of mine when i kick-started my fund.”

— Andreas Klinger (Remote First Capital) 

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Content

The venture airwaves are more crowded than ever. A poor or tone deaf approach to “thought leadership” may turn founders away. As a result, it’s increasingly important for investors to be authentic and deliver unique content.

Content comes in many forms: podcasting, tweeting, writing on Substack, short-form video on TikTok, long-form videos on YouTube, and more. Finding the right medium is important – some people are exceptional writers but terrible at live podcast interviews.

First Round’s First Round Review delivers high-quality and in-depth articles for founders. Julian Shapiro’s Demand Curve newsletter provides actionable strategies for founders. Lenny’s Newsletter provides in-depth how to’s and stories relevant to startups. Pack McCormick’s Not Boring newsletter goes deep into specific trends and businesses. Harry Stebbing’s 20VC podcast is a fixture in many founder’s podcast rotation, providing insight into how VCs think. At Weekend Fund we publish market maps that highlight trends and companies in particular spaces.

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There are soooo many other examples we could include. Those that execute a consistent and high-quality content strategy are more likely to attract inbound deal flow from investors and founders, and ultimately stay top of mind within the ecosystem.

Why Hustle Fund has positioned themselves as an education media company x VC fund 

“We receive over 1,000 deals per month at Hustle Fund, our pre-seed stage fund. People are often surprised to hear that we do zero outbound deal sourcing (aka, e-mailing founders directly asking them to engage). Everything is inbound.

Philosophically, we've decided to approach Hustle Fund as as much an education media company as we are a VC fund. The co-founders all come from media startup backgrounds, and our view as pre-seed allocators is that there is always a new founder showing up each day, and we should assume that founder has absolutely no knowledge of navigating startups and VC from day one.

As a result, we invest in a lot of content to educate particularly new founders about our ecosystem. This comes in the form of social media, blogs, newsletters, and YouTube. We are constantly publishing across all our channels, and we think that the effects of adding tons of free value to founders has naturally led to more deals for us over time, based on our data.

Fun fact: Twitter alone historically has driven 30% of our deal flow!”

— Eric Bahn (Hustle Fund)

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Why Maya Bakhai of Spice Capital is vocal about what she’s interested in investing in 

“Be vocal about what categories you are interested in investing in and what your value proposition is as a fund. Publishing content around categories you are ready to invest in on Twitter/LinkedIn/TikTok/Blog allows founders to discover you.”

— Maya Bakhai (Spice Capital) 

Building a brand 

Your brand is what others think of you, largely influenced by what you do. Investing is relationship-driven and the contracts signed formalize a multi-year, sometimes decade+, engagement. A relatable and positive brand can help one attract and win deals. The opposite is also true.

Some VC funds have a very polished and professional brand, like Benchmark. 

Other funds are more relaxed and personable, like Hustle Fund.

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“We have an irreverent, wholesome, dad-jokey kind of vibe with all our content that makes it both entertaining and educational. It also creates a selection bias of the types of founders who vibe with us, and we tend to find that those who get our voice really love to work with us, and vice versa.” – Eric Bahn (Hustle Fund)

Founders Fund has a unique brand focused on attracting non-conventional thinkers. This is evidenced by how they brand their events such as Hereticon as a “A conference for thoughtcrime” with a prompt to potential attendees: “Imagine a conference for people banned from other conferences. Imagine a safe space for people who don’t feel safe in safe spaces.” 

Outbound 

“If you're only investing in what lands in your inbox… you're not doing enough.” — Julian Shapiro (Julian Capital) 

Having an outbound strategy, and not solely relying on inbound channels, can help investors reach outside “their bubble”. It can be especially important for many emerging managers that haven’t yet established consistent inbound deal flow.

In this section we cover: 

• Programmatic Search 
• Demo days 
• Building community 

Programmatic search 

Scanning existing networks can be an effective approach for sourcing founders. On LinkedIn or Twitter, founders that list “stealth startup” in their resume or bio, operators that are “starting something new,” or old colleagues announcing their recent departure, could signal opportunities to reach out. Of course, these channels are well-traveled so finding proprietary sources of signal may be far more impactful. 

You can also build systems or use tools that scan the market in a more automated way. There are a wealth of tools that assist with this search such as Pinched and Harmonic. Specific filters provide a more focused approach to finding relevant opportunities. Searching sources such as Crunchbase that have structured metadata detailing aspects of a company such as their stage, employee count, and hundreds of other fields to narrow down results.

Some funds even have proprietary data advantages, such as AngelList’s Quant Fund, Signalfire, and QuantumLight. If you have access to data that is unique to you through events you may have hosted or a subscriber base for a newsletter you write, you can build exclusive data-driven sourcing strategies. ‍

How Maya Bakhai scans the market across Twitter, LinkedIn, and other channels 

“There are plenty of ways to find deals creatively if you are trying to play the volume game and scan the market. You can monitor Twitter; follow VC accounts in your sector and keep track when they start following new founders; you can scrape LinkedIn to look for "Starting something New"; you can follow newsletters who cover niches you are interested in investing in; and you can also start building relationships early at college campuses.”

— Maya Bakhai (Spice Capital) 

Demo days 

Demo days hosted by organizations such as Stonk’s and YC are far from “proprietary” but can provide an efficient path to evaluating dozens of investable companies in a short amount of time.

As the world has gone more remote, more demo days are now streamed online and lists of companies presenting are often shared in advance. This makes it even easier to reach more founders, although it’s important to acknowledge that this efficiency can also increase the amount of competition among investors.

Building community

Building, contributing to, and investing in communities can be an effective way to source opportunities. Communities put you in the flow of information and by their very nature, facilitates relationships and trust.

Jason Lemkin builds community through his annual SaaStr conference. Brianne Kimmel builds community by hosting weekly startup dinners: 

“Before raising a dollar for my fund, I had taught over 5,000 students, hosted weekly startup dinners and jumped on diligence calls when firms had questions that aligned with my experience in SaaS growth and GTM.”

— Brianne Kimmel, Worklife 

Of course, communities also live online in the form of WhatsApp groups, Discord servers, or bespoke online platforms like Product Hunt or YC’s Bookface.

Mark Scianna @ Forward Deployed VC invests in alumni networks 

“Join or start an alumni network of previous companies you’ve worked at. About half of our deal flow last year surfaced first in Slack, Discord, and LinkedIn alumni groups. Participate in channels like jobs, tech, investing and keep an eye out for signs of ‘starting something new.’”

— Mark Scianna (Forward Deployed VC) ‍

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How Julia @ Awesome People Ventures gets deal flow through her community 

“We mainly get deal flow via our community. This includes the usual sources like other emerging managers and angels. It also includes other investment DAOs, community DAOs, and Twitter. It's helpful to stay close to the builders and continue to play with the latest products. We also run various programs like book clubs and ‘unpartner’ meetings to bring together other angels and solo GPs to talk about white papers, themes, and deals.“ 

— Julia Lipton (Awesome People Ventures) 

Learnings 

We asked some fund managers for their biggest learnings on getting deal flow. 

There is no right way to get deal flow 

“Do what comes natural to you. Play to your strengths. For me, it's building and participating in communities. I do it this way because it's fun for me. Some people love producing content and have incredible top of funnel deal flow. Some people have 1-2 close contacts that consistently pick unicorns and are heavily reliant on their deal flow. Some people are close with the folks at the multistage funds and consistently get their interesting, but too early deals. There is no one right way to get deal flow.”

— Julia Lipton (Awesome People Ventures)

Focus on quality over quantity

“A key learning we’ve had in sourcing deal flow is to focus on quality over quantity. Since our approach is very high touch, we really invest in relationships with founders that we want to work with which means we focus most of our time on deal flow channels that are high quality versus high volume.”

— Jenny He (Position Ventures) 

Continuously increase your “surface area”

“Because there's no single source that I rely on, my strategy has been to continually increase my surface area. I meet with a lot of emerging fund managers, I go on podcasts, I tweet about areas I'm interested in, I check out demo day company lists, I share my learnings with the readers of great blogs like Signature Block ;), and so on.”

— Leo Polovets (Susa Ventures) 

Review your investments regularly to surface “super-referrers” 

“There are two key elements of sourcing: quantity and quality. It's easy to think of people who send you a lot of deals, but we don't always think about who consistently sends us the best deals. Review your investments regularly and look for patterns in who consistently sends you the best companies that you see. Invest more time into these relationships.”

— Leo Polovets (Susa Ventures) 

VC is a relationship business 

“This is a relationship business. Deal flow will come your way if you are good to founders, partner with other investors, and are a positive contributor within your network.”

— Mark Scianna (Forward Deployed VC) 

Reputation is everything

“However, you must make sure to follow through - don't set up meetings with founders until you have researched and developed conviction in their business model already. When you are an emerging manager, reputation is everything. You don't have the luxury of taking meetings just to track founders. Big funds can get away with this because they have brand signals. If you pass and disappoint the founder you lose them and their entire founder network for the rest of your fund life.”

— Maya Bakhai (Spice Capital) 

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If you’re a fund manager, thinking of starting a fund, or just curious, subscribe to Signature Block if you haven’t already. If you think this might be useful for others, share on Twitter.

Lastly, let us know what topic you’d like us to cover in the next edition. 

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Until next time,
Ryan, Vedika, and Eric :)