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Deal sourcing is an essential part of each company in the Private Equity and Venture Capital industry. We asked expert venture capitalists Simon King (Octopus Ventures), Véronique Jacq (BPI France) and Lucanus Polagnoli (Calm/Storm Ventures) how they source deals, which strategies they use and which prove to be effective. Here are their insights.
How do you source deals, what specific strategies do you use in your company? How successful is each source?
Simon: Through network is our highest quality and most successful source of deals. Principally other VCs and Angels, but also our portfolio CEOs, NEDs, as well as headhunters and lawyers. We have often tracked entrepreneurs who come to us from a variety of sources (network, events, deepdives etc.) and we say no first time they come to us for funding (or they aren’t fundraising when we speak to them), but keep contact and invest at subsequent rounds. This is especially important for competitive deals where a history of being helpful and in contact puts us at an advantage.
Cold inbound approaches have a very low chance of success, 2 ever.
Pro-active search in incubators, engineering & CS schools, startup competitions
Pro-active search on the social networks (LinkedIN, Twitter…)
Business angels, VC investors, entrepreneurs from our professional networks
Colleagues from Bpifrance (financing activities) as Bpifrance integrates investment and financing activities.
Lucanus: Calm/Storm is one of the most active pre-seed investors in Europe in the digital healthcare space so we see a lot of good quality inbound dealflow coming both directly from the founders and our network - fellow VCs and operators. Our Supporting Partners, who are successful entrepreneurs and industry experts themselves, are a great source of warm introductions and a personal recommendation means a lot when you’re essentially looking for a founder-market fit at the pre-seed stage. However, we have also invested in companies that simply applied through our website and we pay great attention to this source as well so I would recommend any startup to just submit their pitch at calmstorm.vc.
Impact of digitalization on deal sourcing & alternative data sourcing. Do you use investment screening with AI & data-driven deal sourcing?
Simon: We use data and software tools to help identify and longlist teams and companies we want to track, but we don’t use ML in evaluating companies at present.
Véronique: We can use data-driven technologies to source deals (not very sophisticated technologies). Eg: automatic search on LinkedIn or on the French new companies’ creation database.
Lucanus: We invest in pre-revenue or even pre-product companies so the signals we’re looking for are all about the people, which can be sometimes difficult to quantify and trace. To that effect we do use scraping to find promising founders early on but you don’t necessarily need AI for that. I am also conscious of the fact that underrepresented founders can often fly under the radar and I would risk the hypothesis that a lot of algorithms used for screening can be inherently biased.
What about doing deals virtually during Covid-19 and post-Covid in 2021?
Simon: Post a lull in March to August 2020, sourcing investments have returned largely to normal. Even some virtual events are working well, though they are harder to plan and take more effort to get people to attend. I have a concern that Angel funding may be harder to come by for entrepreneurs who can’t go and network or meet people face to face and this may have a knock-on impact on companies coming to us in 6-18months time.
We have made investments fully virtually without ever meeting teams, but it is not our preference and we still want to be proximate to teams we invest in because I believe when things go wrong you need to have hard and difficult conversations face to face.
Going forwards we will likely still do first meetings by video conference because it is so much more efficient for entrepreneurs when they are fundraising. However, we will do physical visits to companies as part of our process to ensure we’ve met people face to face.
Véronique: We did it during the Covid-19 period (from 1st meeting to closing). We still have more videoconference meetings to meet entrepreneurs than before Covid-19, but we do value face-to-face meetings to carry out a complete evaluation.
Lucanus: We have essentially launched our fund during the pandemic and the majority of our deals have been done virtually so I don’t think much will change for us post-covid. We have a fully remote team who is free to work from anywhere and we talk to startups from all over Europe and the US. It’s always nice to meet founders in person but we’re comfortable investing in them over zoom as well.
The referral deal flow: how networking helps VCs source deals and how VCs use referral networks in deal sourcing?
Simon: The network is critical and the number one source of companies we invest in. We actively think about building and maintaining networks and how and what we can give back to them.
Véronique: We value referral deal flow a lot. It is often through our professional network that we get the best opportunities. It works as a virtuous circle: we invest in companies and develop relationships with entrepreneurs and investors; if we have success at the end of the journey, entrepreneurs and investors are always happy to work again with you; so, you get new opportunities from investors and from entrepreneurs who create new companies or invest in new ones as business angels.
Simon joined Octopus Ventures in 2012 and sits within the Deep Tech team, focusing on AI and machine learning, advanced materials, semiconductors and Quantum Computing. He sits on the boards of several portfolio companies including Phoelex, Orbex, Dogtooth Technologies and Elvie and previously sat on the board at WaveOptics (acquired by Snap). He also looks after the origination strategy at Octopus Ventures. Simon’s academic background is in Physics, Chemistry and Materials culminating in a PhD in organic electronics from Imperial College London.
When not at work, Simon is a father of three boys (and being one of three boys, he knows how bad things are going to get!); in his minimal spare time he enjoys playing piano and guitar, learning new things (currently Mandarin) and being outdoors.
Véronique Jacq serves as manager of Digital Venture activity at Bpifrance Investissement. She has been an investor in Venture Capital for over 14 years.
She initiated the Venture Capital (VC) activity in 2011 [with the first generation of “Ambition Numérique” fund, a Series A & B VC fund focused on digital sectors. The scope was extended to Seed stage in 2016 with the launching of “F3A” fund focused on very early stage investments alongside business angels.] With €750m under management, the Digital Venture activity backed +100 companies and had +20 exits since 2011 (Wallix, Teads, Balyo, Recommerce, Netatmo, MeilleursAgents, EasyRecrue, Lengow, Neotys, Talentsoft...).
Before joining Bpifrance, she held different positions in audit, finance and investment activities (Anvar, French Audit Office, CDC Entreprises). She started her career at the Nuclear Safety Authority. She graduated from Mines ParisTech and Corps des Mines.
Lucanus is the Founder and Managing Partner of Calm/Storm Ventures, a founder network and boutique venture capital firm based in Vienna, Austria. Prior to founding his own fund, he was a General Partner at Speedinvest where he personally led investments focused on digital health companies including Playbrush, Ourpath, or Diagnosia. Before his time at Speedinvest, Lucanus was managing director of whatchado.com a portfolio company of Hansi Hansmann's "hansmengroup". Lucanus holds Master degrees in Entrepreneurship (WU Vienna) and International Management (CEMS). He is passionate about supporting founders with purpose who try to solve problems that really matter by leveraging his nearly 20 years of experience in business & corporate development. As a passionate sailor and father of 3, you'll find Lucanus spending his spare time with his kids on a boat.
Interested to gain more detailed know-how from our experts?
Join our upcoming PE & VC conference 0100 Virtual Europe scheduled on 02-04 November 2021. Simon, Lucanus, Stephan and Véronique will discuss deal sourcing in Venture Capital on the 2nd day of the conference (3rd of November) at 1 pm CET.