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🧨Best & Worst Sources of Deal Flow for Syndicate GP’s🧨

Deal flow is a critical component to operating a VC syndicate or venture capital in general. Discerning which sources are effective and which ones are relatively wasteful is paramount when navigating the diverse landscape of deal flow channels.

As previously stated in our prior posts, it is essential to emphasize that sourcing serves as the lifeblood of the venture capital industry, a fact that holds even greater significance for Syndicate General Partners (GPs). It is imperative to recognize that this dynamic contrasts significantly with the realm of public market investors, where virtually all participants are presented with near identical investment opportunities. In venture capital, numerous firms have successfully raised capital primarily due to their deal access.

In this post, we will explore where the best and worst sources of deal flow typically come from for syndicate leads.

🧨 Best Sources of Deal Flow 🧨

1 → Other Syndicate GPs / Co-Syndicating

Co-syndicating is by far the best source of deal flow for us.

Why? Because there is so much alignment of incentives here and it is unique to traditional VC where this does not take place in this fashion.

While the co-syndication strategy is very new, it is personally my strongest deal flow channel.

So, what is co-syndicating?

Co-syndicating is when 2 (or more) syndicates team up to run a SPV together, essentially becoming Co-GP’s on a given deal. Zach and I have done this many times together but also frequently with other syndicate leads.

I believe this is easily the best source of deal flow because it’s a great way to collaborate and share economics with other GPs who have already decided to invest in a deal, already sourced the deal, and already secured the allocation.

I’ve talked about why GP’s co-syndicate previously, but the short of it is:

1. Access a larger capital pool via your co-syndicate partner

2. More exposure to new and potential LPs

3. Grow your LP base faster

Once you build co-syndicate relationships, it’s a meaningful way to work together and a repeatable way to work together.

And guess what?

I’ve co-syndicated deals with over 35 syndicates. That means there are 35 different syndicates that I’ve collaborated with, and are essentially evergreen channels of deal flow. The reality is that I did not like working with everyone, however the majority are active channels to source deals.

The alignment and shared incentive makes co-syndicating the best deal flow channel for syndicates.

Examples: Here’s a few of my favorite deals we’ve co-syndicated with other syndicate GP’s:

1. Shop Circle with Ali Jamal of First Check Ventures

2. Sandbox VR with Zach Ginsburg of Calm Ventures

3. Betr with Ashley Flucas of Flucas Ventures

4. Efficient Capital Labs with Gaingels

5. Lemon Perfect with Jeremy Levine & Jordan Fligel of Founders First

6. Texas Ranchers (Major League Pickleball Team) with Drew Austin & Elana Dickman of Red Beard Ventures

7. Healthie with Nick Dolik of Dolik Ventures

8. Autopilot with Colin Gardiner of Yonder Ventures

2 → Portfolio Founders

The beauty of portfolio founders is that, well, they are founders. And founders are constantly meeting other founders to talk about the challenge of being a founder (This is why quality founders pay $8.5k/year to be a part of Hampton). To no surprise, founders are always looking to get intros to the right investors and they typically will trust recommendations from other founders who can speak to the experience of actual investors they have on their cap table.

As I’ve stated before, building meaningful relationships with your portfolio founders will no doubt be an astounding sourcing tool. Nobody has the ability to make you shine like a great portfolio reference can.

Example: Kaustav Das is a Riverside portfolio company and founder & CEO of Efficient Capital Labs (ECL). ECL is a revenue-based financing tool that provides capital in a fast, seamless & cost-effective manner to Saas businesses. ECL’s audience is quite similar to the stage of companies that we invest in, therefore, Kaustav is frequently sending deals/founders my way to further explore investing in. As a founder, Kaustav is consistently meeting new founders on their journey but also as a revenue-based financing platform for other saas startups.

Notably, I know one of Zach’s largest wins that has been distributed came from an introduction from a portfolio founder that ended up returning LPs ~10x in a year. 

To the point above, founders are always generally excited to chat with me in this context. It’s not just because I am an investor with access to capital, but I am an investor that has been recommended by an existing portfolio founder.

3 → Limited Partners (LPs) 

Your LPs are your partners in many regards. As investors in the syndicate, they may share an interest in success and the best GPs truly treat the syndicate as a community.

Many of our LPs come from various backgrounds within startups and have unique access to deals/founders. For example, many of our LPs are founder/CEOs themselves or heads of departments like Product, Engineering, Sales, Marketing, Operations etc. Others might be agency owners helping startups at their earliest stages and therefore work with founders very early in their journey. Others might sell into startups and access companies from this avenue.

In order to incentivize LPs to share deals, many GPs will offer carry shares via scout programs when the LP sources a deal and supports due diligence. This is something we at Riverside & Calm do and I would generally recommend other syndicate leads do as well.

Example: Adrian Alfieri is an LP of Riverside Ventures and he is consistently sharing various deals with us that either he is investing in or has unique access to where he may be supporting their content needs via his agency Verbatim. I know that when Adrian sends me something, it will be interesting on some level, so I am more eager to spend more time on deals he shares.

Additionally, I know Adrian likely knows the company pretty well because he is either also investing or has seen behind the curtain in supporting content needs and has a pretty solid understanding of the business.

Adrian is a great example of a profile of LP who has and can consistently source high quality deals.

4 → Angels

Similar to LPs, angels come from many different backgrounds, and based on those backgrounds, typically have some unique access to startups. Angel investors can be one of the best channels for early-stage deal flow given their relationships and stage in which they are investing or already invested.

Most often, angel checks are smaller than traditional funds, so introductions to VC’s or syndicates can be of value to the company. Angels also do not have ownership targets like a traditional VC so they do not view others as competitive whereas some VCs might when they find themselves fighting for ownership in a round.

When receiving deal flow from angels, it’s always important to understand if this is a deal that the angel investor:

1. Is investing in alongside in this specific round

2. If they invested previously and the context of the growth and new round taking place

3. If they are advising the company, and why/what incentives there are for them

Understanding the 3 points above will paint a more clear picture on their enthusiasm towards the company and founder versus just being along for the ride with upside and no personal capital in the deal.

Example: Colin Gardiner is an angel investor & advisor that I've been collaborating with recently. Colin has a robust background operating marketplace businesses, and as an angel, he is typically investing in the marketplace companies.

I know that when it comes to marketplace deals, Colin has unique access there given his past operating and presently advising a bunch of businesses. Recently, Colin had access to a seed stage marketplace business that he previously invested in, and was raising a seed round from a tier 1 VC in a competitive round.

Given his founder relationship, he was able to partner up with Riverside and secure a larger allocation for us to work on together and access the competitive round.

5 → VC’s

I’ve talked about this before, but early on, I really invested in building my VC rolodex to:

1. help my founders get in touch with the right VC’s and

2. to source deals for VCs to in turn increase my access to their deal flow.

This is really where the relationship comes into play. It’s easy for VC’s to simply take, and not keep you top of mind for deals they lead. This is because our checks are typically smaller, but frankly, keeping angels and syndicates top of mind is just something VC’s do not need to do. It really comes down to your value prop to them and/or the portfolio company, and your ability to stay top of mind so that they actually do think about you for deals alongside them.

I think many folks overlook the simple action of staying top of mind. It’s amazing some of the deals I sourced simply from being top of mind, or in touch, or in email communication with the right VC at the right time.

However, it is important to understand the context of the deal that VC’s share with you, like:

• Are they investing in the round?

• Are they leading the round?

• What is their check size?

• Did they previously invest?

• Why are they investing here?

• Why are they sharing the deal with you?

More to come on these questions later in this post.

Example: Over the years, I’ve shared many deals with many VC’s. Some of the firms that have reciprocated (and we invested in a deal they shared) include:

• A16z (Andreessen Horowitz)

• Elizabeth Street Ventures

• Afore Capital

• Craft Ventures

• Resolute Ventures

• NextView

• Base 10

• Sidekick Partners

• Struck Capital

• Torch Capital

• Palm Drive Capital

• Bolt

• GFC

The reasons the VC shared the deals have varied, but having a small army of institutional allies who typically lead rounds & set terms has been tremendously helpful when it comes to sourcing.

Worst Sources of Deal Flow

You will notice that some of these sources are the same as above. Believe it or not, some of the best sources can also be some of the worst. In short, the context of the deal and why they are sharing really matters.

I’ll get into why these can be weak sources and what information matters here.

1 → VC’s

While VC’s can be a great source of deal flow, they also can be a weak source. It is important to understand their incentive and also their relationship to the company when sending a deal your way.

Here are a few scenarios to watch out for:

1. The VC firm is not investing in the round and doing their follow on → unless they have a really good reason why (which even then i’d be skeptical) they are likely not bullish on the company any more.

2. The company is running out of cash or a dying port co → this is somewhat self explanatory, but it heightens the risk to invest in a company that has such little runway and is relying on outside capital. If a previous lead is not going to step up, this is not going to be a worthwhile deal to look at generally speaking.

2 → LPs 

There are plenty of LPs who are new to the early-stage venture game (some may be experienced investors but this still does not matter). If they have yet to see or source quality deals, it might just be too early for them to understand what a good deal looks like.

I do have empathy here, because I was once there. The intentions are most likely good, but you need to realize it takes time to get there. For that reason, I’d be a bit weary of LPs sourcing deals where they are early on their journey of early-stage investing.

3 → Brokers

Brokers frankly do not have any business in early-stage startups when it comes to primary transactions. They can plan a significant role for secondaries (when existing shareholders in the company sell their stock to another investor), but we can discuss that at another time.

1. The best early stage companies don’t need to and would not work with a broker. I haven’t heard of any good early-stage company that used a broker. The best companies tell their stories and raise capital themselves.

2. Fundraising is core to the role of founder, so someone who outsources this is unlikely fit to be a founder. It’s a massive turn off to have someone outside of the company reach out on their behalf and try and pitch you or get you to meet the founder.

Of note, at the later stages (mature, pre-IPO), brokers including investment bankers can play a role in competitive private placements.

4 → Founder Cold Outreach

Other VCs may differ strongly here, but while I have a strong affinity for cold outreach, the odds of discovering a promising portfolio company through cold outreach is relatively slim against the time it consumes. When I receive messages, I tend to swiftly peruse them to identify any compelling elements. It's not a matter of insignificance; rather, it's a matter of allocating time judiciously, given the abundance of tasks throughout the day, and cold outreach isn't something I want to dedicate an extensive amount of time to.

That all being said, I will tell you that I have invested in founders that have cold outreached me. So, it’s not impossible, my point is just that it's relatively weak deal flow.

A founder that goes out of the way to find an intro to me from another investor or someone I trust and have a relationship with immediately gets more of my attention when reviewing their deck/deal materials.

If you have the time to review cold outreach, then do it. It’s good information. Just know that the quality is typically going to be weaker there than when you get someone else putting some level of a stamp of approval on it.

In Summary

I want to end by saying that each VC has sources that work best for them, and they tend to lean into that. Each VC or prospective investor should try different sourcing approaches, and ultimately lean more into the strategies that are leading to the best, most consistent sources of deal opportunities. While for me, it may be other syndicate GPs, LPs, VCs and angels, for others that may be attending accelerators or via their employee networks.

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✍️ Written by Alex and Zachary