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Where Do Venture Capitalists Find Their Companies?

by Editor on 21/09/09 at 4:03 pm

via VCCircle feeds

To-be-entrepreneurs often wonder how to get noticed by venture capitalists and where exactly do VCs look for their investment companies. So here’s an attempt to answer some of those doubts…
VCs get their deal flow from the following sources (in no particular order):
1. Personal Networks;
2. Repeat Entrepreneurs;
3. Other VCs;
4. Email / Blog / Cold Calls;
5. Professional Service Providers; and
6. Venture Shows / Trade Shows.
It’s hard to put a particular percentage on each category.  In general, good VCs with healthy deal flow invest in 1% or less in the aggregate of their deal flow.

As for division between sources, a healthy VC might see the following division:
1. Personal Networks; 30-50%
2. Repeat Entrepreneurs; 30-50%
3. Other VCs; 10-20%
4. Email / Blog / Cold Calls; 5-10%
5. Professional Service Providers; 5-10% and
6. Venture Shows / Trade Shows. 0%
So what does this mean?  The low hanging fruit is VC / Trade shows.  If you are presenting at a show, you’ve already struck out the normal routes of VC investment and you are pitching to “everyone.”  Most VCs who have healthy and proprietary deal flow don’t go / care about these types of events.
Clearly personal networks / repeat entrepreneurs are the major sources of companies.  This is why investors should choose one VC over another.
As for the cold call / email / blog category – yes it does happen.  A VC with a strong web presence can attract good deals.
The professional service providers can also be a source of deals. Lawyers and accountants occasionally have good clients to fund.
So bottom line – you have a much greater chance of getting a deal done if you are already in a VC’s network or if you get a warm intro from someone in their network. Your other avenues are much less likely, but not impossible.