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Setting up a Venture Capital Funnel for Your Startup? Here’s How to Optimise Deal Flow

Published On
December 19, 2022
Read Time
Jay Magdani

From the humble beginnings of 471 startups in 2016, India has grown to become the third-largest startup ecosystem. As of June 2022, India has a whopping 72,993 startups. While these numbers speak for the growing investment of Venture Capital firms in the market, approaching them is not easy, and there can be many challenges. 

With the entry of new startups, new VC firms are also entering the investment landscape. As a result, startups are more likely to get funds from these VC firms.

To be successful and land perfect deals, startups need to improve their deal flow process and efficiently manage and give the right pitches.

This article discusses five ways to optimise deal flow and improve the quality and quantity of deals

1. Set Up the Perfect Funnel to Manage Deal Flow

Your funnel represents the qualifying process through which a large pool of potential investors and contacts is filtered down to the ones worth contacting. The main function of this process is to land an investment, but you should keep in mind that not every contact you begin with will end up being an investor.

Startups with a strong referral network and robust processes for acquiring leads often struggle with managing them. Setting up a deal management system is essential with so many leads and information. This way, you can spend resources in places that matter.

Here are some methods to manage your deal flow:

1. Fill the top of your funnel with 150-200 potential investors. The industry typically has a 5% conversion rate. Hence, to land ten signed investment deals, this can be a good first step.

2. Have a team member prepare perfect pitches for different VC firms.

3. Centralise all communication with a tracking tool, so your team doesn't lose valuable information. You can also repurpose your CRM tool to help with fundraising.

2. Leverage New Ways of Networking

Conferences and offline networking events were the backbone of landing venture capital deals. But changes in the travel and networking industry have also affected how VC firms build networks.

With increased data availability, you can filter events based on various factors, including industry type, employee count, etc. This way, you can select only those events that align with your goals and needs.

You can also become visible on social forums to help communities and build long-term relationships. But, if you are an introvert who finds networking stressful, you might have to adopt slightly different tactics.

3. Conduct thorough Research on the VC Firms

The researching step in your funnel occurs in the later stages. Still, it is advisable to conduct some due diligence early on to save time and filter high-quality leads.

The following pointers can help you sift through VC firms at an early stage itself.

1. Check if they have invested in a direct competitor.

2. Ensure they invest in your sector. For instance, a VC firm that invests in education-related startups is less likely to invest in your fast-moving consumer goods (FMCG) startup.

3. Check for their average check size. If you’re raising 500K and you find an investor whose average check size is 3M, then you know you don’t have to meet with that investor (at least for this round).

4. Use a Data-Driven Approach to Land Deals

One person cannot wade through the massive amounts of data needed to select the right VC firm. Moreover, there is the risk of making an irrational, emotion-based decision. Some popular tools out there can help you find and shortlist potential investors based on common factors like location and industry. These tools are AI-enabled and can make your job a breeze. You can set parameters based on which AI will evaluate VC firms and predict the success rate. 

5. Market Yourself with the Perfect Pitch

A comprehensive pitch will increase brand awareness and position you as a company worth investing in. Any startup looking for investors should have a pitch deck, an executive summary, and a financial forecast ready to go any moment, as these would be the first deliverables any VC firm you approach will ask you for.

Start Improving Your Deal Flow Process

The increased competition in the investment space pressures startups to land high-quality deals. To be successful, all startups need to optimise their deal flow process with the latest strategies.

Traditional investment methods relied on referrals, offline networking events, etc. But today, VC firms are also keen on integrating modern methods in their deal flow process. They now leverage marketing and new networking methods to attract leads. Hence, it is vital to modernise your funnel and meet them on common ground.

At Scalix, you can learn more about the investment and startup world. We provide founders with a platform to connect with other founders and investors. 

Sign up today for regular virtual sessions, expert hours, and AMAs with industry professionals, which will help you acquire new strategies and achieve your business goals. Reach out to us if you have any questions and would like to know more.