How can deal sourcing metrics help identify high-potential startups? (2024)

Key takeaways from this article

• Track conversion rates:

  Monitoring how many startups move from one stage to the next in your deal sourcing funnel provides insights into where you might be losing potential winners. Adjusting strategies at each stage can help capture high-potential startups more effectively.

• Active networking:

  Build a robust deal flow engine by actively engaging with your network and sharing it. This proactive approach not only increases the visibility of potential deals but also attracts quality startups seeking knowledgeable and connected investors.

This summary is powered by AI and these experts

• Dr. Deepak Motwani Principal @ Wadhwani Foundation -…

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  Deal sourcing metrics help identify high-potential startups by providing quantitative measures to evaluate and compare investment opportunities systematically. These metrics can include factors like the startup's growth rate, market size, customer acquisition cost, lifetime value of a customer, churn rate, and burn rate. By analyzing these data points, investors can gauge a startup's financial health, scalability, and market potential. Metrics related to the founding team, such as their experience and past successes, offer insights into the company's leadership strength. Incorporating industry trends and competitive analysis into these metrics allows for a more comprehensive assessment.

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• Patricia Russ Founder @ ParkEnd Ventures | Building tech ecosystems for global growth I Previously: Google for Startups I World Economic Forum I United Nations

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  In the startup landscape, smart deal sourcing metrics are essential. They evaluate potential investments through growth rate, market size, customer costs, and team strengths. For example, data shows VC-backed startups with experienced founders are 50% more likely to succeed.These metrics, including churn and burn rates, offer a 360-degree view of a startup's health and scalability. Beyond numbers, the founding team's track record is pivotal. In essence, these tools empower investors to make data-driven decisions in a competitive market.

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• Jean-Luc Vanhulst Building AI back office for Valor Ventures, evaluating AI SaaS startups and support growing the ones we've invested in. Python/NextJS/OpenAI/Pinecone

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  It's no different than any sales funnel! If you don't track progress you won't see progress. And like any funnel, there is truth in numbers - you will need a constant feed. We have a weekly Monday morning update that shared the funnel progress for last week compared to the week before and YTD compared to last year.

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• Patricia Russ Founder @ ParkEnd Ventures | Building tech ecosystems for global growth I Previously: Google for Startups I World Economic Forum I United Nations

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  When I was at Google for Startups as well as at an early stage VC fund, we almost exclusively relied on our networks to source top startups. The earlier the investment stage, the more important are individuals in the founding team. At pre-seed you essentially invest in founding teams first and then into the idea, which they might anyways pivot in the future. Hence, personal referrals from credible founders or from other VC funds are the strongest differentiator an early stage or first-time founder can have.

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• Dr. Deepak Motwani Principal @ Wadhwani Foundation - Empowered 150+ early stage startups in raising over 65 CR+ in CY 2023 | Entrepreneur | Ex-IIMAVentures

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  Deal sourcing is neither purely a science nor an art; it's a blend of both. Science aids in establishing clear metrics, such as founder's experience, product-market fit (PMF), go-to-market (GTM) strategy, current revenue, valuation, and projections, to identify the best deal in line with the mandate. The art aspect comes into play when building rapport with founders, employing effective negotiation skills, and understanding the collaborative strengths to ensure the selected startup's success. In my opinion, having this clarity is crucial in the deal sourcing process before evaluating an investment opportunity.

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• Luis Rodeguero CFO at Mindset Ventures - CGA/CGE - CCA IBGC

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  One thing I have learned: startups are volatile. They are usually quite different from what they were 6 months ago.You need to update and revisit your pipeline frequently.Keep interacting with your best candidates, observe the founders behaviour, monitor the company performance......and find the best time to make the investment.It is not easy, but no one said it would be! :)

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• Brian Zwerner President of W3 Studio. VC at Beyond The Game Network

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  When I started in VC, I set a pretty wide criteria for the deals we would look at. We even did a deal in year one that we definitely wouldn’t do later on. We dug in and learned, and then we tightened our criteria to something much closer to what we do today. We figured out what sectors, stages, locations, etc what worked best by talking to hundreds of founders.

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  When evaluating team dynamics for investment opportunities, it's crucial to consider a well-rounded set of quantitative metrics categorizing them into four key areas: Team Expertise, which encompasses the team's collective industry experience, track record, and the number of successful pivots they've executed; Execution, where metrics like revenue growth, user acquisition, and on-time project deliveries offer insights into their ability to turn ideas into reality; Employee, which includes employee retention rates and founder vision and values alignment, reflecting the team's cohesion and shared sense of purpose; and finally, Industry Reputation, which measures the team's standing within the industry through peer feedback and surveys.

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• Jean-Luc Vanhulst Building AI back office for Valor Ventures, evaluating AI SaaS startups and support growing the ones we've invested in. Python/NextJS/OpenAI/Pinecone

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  We have a clear set of criteria. We let our AI check against those as a first line of review. The AI doesn't decide for us, but does helping pointing out missing pieces of information and point our disqualifiers. I strongly believe that you do need to stick with your thesis while it's very tempting to be 'opportunistic'.

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  Three key deal sourcing feedback takeaways:1) Continually identify ways to improve the process2) Build strong relationships3) Sourcing and securing the deal is only the beginning. Be available for the startup through the ups and downs

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  Venture Capital is not an asset class just access class. You need to build a deal flow engine that will attract the best founders. This cannot be done passively. You must be active, use your network, and share it with others. This will give you access to more investment projects.

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  Team composition and past successes are vital metrics for assessing a startup's execution capability. The founders' backgrounds reveal expertise and leadership skills. For example, PayPal's founding team, including Max Levchin, Peter Thiel, Luke Nosek, Ken Howery, Yu Pan, and Elon Musk, showcased a blend of strong professional skills and deep mutual trust. This combination of diverse talents and strong interpersonal relationships was key to PayPal's success. Such teams often resemble a close-knit family, underlining the adage, "It’s not what you know, it’s who you party with that matters most." This approach, blending professional acumen with personal bonds, is a powerful success factor for startups.

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