Last month, our Managing Partner Rohit Goyal got featured at Entrepreneur India for penning down a piece on Deal Sourcing changes in the COVID era. We thought it'd be interesting to list out few important pieces on what changed and what didn't:
First up, not a lot has changed.
In fact, things seemed to return to the old ways. The spotlight is back on the network and a strong referral. Pre-Covid, we were just seeing shifts made by technology that automated a lot of deal sourcing for investors.
However now, founders have to be there at the right place at the right time when a VC is actively looking for lucrative opportunities.
Founders (reaching out to us via referrals) showcase their ability to be resourceful. In trying times like these, especially when anything can change in a rapid second, being resourceful (as a founder) is a great positive indicator for any investor.
The events and conferences that used to happen previously, which proved to be a great way to spot 'hidden gems’, were all shifted to being online. But with virtual events and meetings, it becomes harder to tap into what is genuine and what is inauthentic. So, for the funds and the founders alike, this transition was filled with experiments to test and gauge the other side. Currently, this space (demo days, pitch days, other such networking events) is crowded and good founders will have to find other avenues to reach out to potential investors.
However, establishing relations with the investors is just the beginning. Investors these days are flushed with deals, in order to make sure you’re differentiating yourself from other founders, avoid pitching plain vanilla. Strive for being the cherry on top, something that makes your startup so attractive that the investors reach out to you before anyone else.
Just like a PMF (Product-Market-Fit) or FMF (Founder-Market-Fit) is a must while building a product at a startup, identifying and adhering to an IFF (Investor-Founder-Fit) is equally important while fundraising. Many investors and VC firms have certain sweet spots, sectors, and stages that they are actively looking to invest in because it fits their investment thesis. As a founder, you’d be saving yourself a lot of time and money, by researching and targeting only those investors who are looking to invest in your space, and at your stage (seed, series A, series B) Besides, knowing what other resources --apart from capital-- would be required to scale the startup, and figuring out whether the investor would be able to contribute towards that, is always a bonus point.
The deal sourcing process differs from fund to fund since the process functions as a funnel that filters all the companies and only lets in a small percentage of prospective companies that pose as potential investments.
There are many layers to this funnel, answering some important questions like: What stage would we like to invest in? What sectors are we interested in? What are the kind of traits we’re looking for in our founders? Where should they be based out of? What kind of solutions should they be building? Answering such questions sets a funnel in place that helps in formulating an entire deal-sourcing process. There are two things to focus on while designing the process: efficacy of the funnel and the relevance of the deals that pump in. Investors looking to refine this funnel in their deal-sourcing process can check out these three tips that might help to increase the efficacy of your funnel as well as the relevance of the deals pouring in.