How Angels and VC Funds Can Build a More Relevant Startup Deal Flow

Guest article. George Penrock is the founder of RaiseRunner and a former Euro VC analyst and associate. Euro VC is an investor in RaiseRunner. This article describes RaiseRunner's products.

Most investors do not lack startup opportunities. They lack relevant ones.

An angel or a VC investment team can receive hundreds of approaches a month and still struggle to find the few that match its mandate. The problem is rarely volume. It is that founders cannot easily tell what an investor wants, how to reach them or what information to send.

This guide is for angels and VC investment teams who source companies directly. It is not about how a fund of funds such as Euro VC selects VC managers, which is a different process. It sets out practical steps that make inbound opportunities more relevant, and it is careful to promise relevance, not better deals. Fit can be designed. Quality still has to be judged.

This article is for general information. It is not legal, financial or investment advice.

Publish a mandate founders can actually use

The most effective sourcing step is also the cheapest: tell founders clearly what you invest in.

A useful mandate states:

• Stage: for example pre-seed and seed only, or seed to Series A.
• Geography: where the company must be based or incorporated.
• Sectors: specific enough to exclude, not just to include. "B2B software for logistics and manufacturing" is more useful than "technology".
• Cheque range: your typical first investment and whether you reserve capital for later rounds.
• Lead or follow: whether you lead, co-lead or join rounds once a lead is in place.
• Exclusions: sectors, business models or stages you will not consider.

Keep it current. A mandate that describes the strategy of three years ago will attract the companies of three years ago.

Make the submission route clear

Founders waste time, and investors lose good opportunities, when nobody knows how to get in touch.

Choose one preferred route and say so plainly. It might be a short form, a dedicated email address or a referral from a portfolio founder. State what happens next and roughly how long a response takes. If you do not reply to unsolicited approaches, say that too. Clarity is a courtesy to both sides.

Ask for enough evidence to screen consistently

If every founder sends something different, every company is screened differently. Ask for a small, consistent set of information at the first stage:

• What the company does, in one or two sentences
• Stage, round size and how much is already committed
• Location and incorporation
• Key evidence of progress, such as revenue, customers, pilots or technical milestones
• The founding team and their relevant experience
• A deck that opens without a sign-up or download request

This is not due diligence. It is enough to decide whether a company is in scope and worth a first conversation.

Distinguish fit from quality

Fit and quality are different questions, and mixing them causes problems.

Fit asks whether the company matches your mandate: stage, sector, geography, cheque size and lead preference. It can be checked quickly and largely objectively.

Quality asks whether this is a company you want to back. It depends on judgement about the team, the market, the product and the price.

Separating the two makes screening faster and fairer. A company that is a poor fit can be declined quickly and politely, with a clear reason. A company that fits deserves a real assessment, even if the answer is still no.

Coordinate referrals and feedback

Referrals from other investors and founders are often the best source of relevant companies. They can also become noise when the same unsuitable company is passed around repeatedly.

A few habits help:

• Tell regular referrers exactly what you are looking for, and update them when it changes.
• Give short, honest feedback on referrals, including when a company is out of scope and why.
• Keep a simple record of which companies you have seen, so a company that was declined for fit is not reviewed again unless something has materially changed.
• When you pass on a company, refer it on only if you know it fits the recipient's mandate.

Good feedback makes the next referral better.

Measure sourcing channels by outcomes, with clear definitions

It is tempting to measure deal flow by volume. Volume is the wrong number.

Instead, track each channel, such as inbound email, referrals, events or programmes, against a few clearly defined measures:

• Relevant opportunities: companies that met your published mandate at first review
• First meetings: relevant companies you chose to meet
• Further diligence: companies that progressed beyond a first meeting
• Investments: companies you backed

Write down what each term means and apply it consistently. A channel that produces fewer approaches but more relevant opportunities and further diligence is usually worth more of your time.

Where RaiseRunner fits

RaiseRunner, which I founded, is a service for founders. It helps them research which investors fit their raise and approach those investors with personal, specific outreach. Before any email is sent, it checks stage, sector, geography, cheque size, fund activity and portfolio conflicts, and the founder approves every message. You can read how it works on How it works.

That founder-side discipline can also help investors. When a founder approaches you through RaiseRunner, the approach should be based on evidence that the company fits what you have said you invest in.

Investors who would like to receive relevant founder introductions can email hello@raiserunner.co with their investment preferences and thesis: stage, geography, sectors, cheque range and lead or follow preference. Introductions are then based on those preferences. The decision to meet, and to invest, always remains yours.

Frequently asked questions

What should an angel investor include in an investment mandate?

Stage, geography, sectors, typical cheque size, whether you lead or follow, and any exclusions. The mandate should be specific enough that a founder can tell quickly whether they fit.

What is the difference between deal flow volume and relevant deal flow?

Volume counts every approach. Relevant deal flow counts only companies that match your published mandate, which is a far better measure of whether a sourcing channel is working.

How can investors reduce unsuitable pitches?

Publish a clear, current mandate, give one preferred submission route, ask for a consistent set of information and give short feedback to regular referrers.

Is fit the same as investment quality?

No. Fit is whether a company matches your mandate. Quality is your judgement about whether to back it. Separating the two makes screening faster and fairer.