People In The Valley Are Passing Around This Smart Take On VC Deal Flow

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Venture capitalists need proprietary sources of deal flow.

Otherwise, they might end up paying more than they have to, while also taking a huge risk. 

VC Mark Suster wrote a blog post suggesting one good source of deals, and two bad ones best ignored.

The good source: Suster says blogging is the best source of deal flow imaginable.

“The sheer number of relationships I’ve built through being public, transparent and being willing to engage in comments and through social media has enabled me to get to know entrepreneurs even before they launch their next company,” Suster writes on his blog.

A bad source: Investment bankers. Investment bankers are designed to help companies get access to investors, but they also make bad companies look good, Suster writes.

Another bad source: “Demo days,” where startups pitch their products in front of an audience of investors, press, and fellow entrepreneurs. 

“Getting excited about a company at a conference and investing is a sucker’s bet,” Suster writes. “Entrepreneurs raising at prices not normally supported by progress face risks downstream when they have to raise more capital. And that fund raising is part of the job of being an entrepreneur – not something that gets in the way of your doing your job.”

Suster prefers to get to know companies over time and loves the startups that don’t lend themselves to demo days. 

“I like to watch how they respond to set-backs and adversity,” Suster writes. “I like to see how they improve their products when there are obvious holes. I like to debate with them how they will land customers and how they deal with the press.” 

Suster also likes to see how they attract teammates, and hear the reasons why their co-founders quit a well-paying job to join a startup. 

“I’ll take messy and hard work any day,” Suster writes.

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