VC deal sourcing

How venture funds source deals

This page covers venture funds specifically. For the general picture across venture and private equity, including banked auctions and brokers, see deal sourcing.

A venture fund sources people more than companies. At seed, there is often no revenue to screen and sometimes no product. The fund is looking for a founder, and the channels reflect that:

• Partner networks. Former colleagues, operators, and friends who know someone starting something.
• Portfolio founders. The founders a fund already backed are often the best referrers it has, because they know the bar from the inside.
• Co-investors. Other funds share rounds they lead or cannot fill.
• Scouts and angels. Operators paid in carry or fees to send the fund early deals.
• Accelerators and demo days. High volume, publicly visible, and competitive on price.
• Inbound. Founders who apply through the website or send a cold deck, handled by inbound deal scoring.
• Self-generated research. The fund decides what it wants to find and goes looking, then ranks who to contact first. That ranking is outbound scoring applied to founders.

Early-stage vs late-stage VC sourcing

The best data on where venture deals come from is a survey of 885 VCs at 681 firms by Gompers, Gornall, Kaplan and Strebulaev, published in the Journal of Financial Economics in 2020 and summarized for practitioners in Harvard Business Review in 2021. It asked each firm where its deals closed in the prior twelve months came from. The split by stage is the useful part:

Late-stage funds generate far more of their own deals, because there are track records to search. Early-stage funds rely more on referrals and inbound. Quantitative sourcing, meaning data models that flag companies, accounted for 2% of deals. The authors also found little difference in sourcing mix between firms with high and low IPO rates, which suggests the channel matters less than what the fund does with each name once it has it.

How to find founders before they raise

The strongest early-stage position is to know a founder before the round exists. A repeatable way to do it:

1. Write down who you are looking for. Turn the thesis into a profile of a person: the problems they have worked on and the companies they have worked at.
2. Build a list of people, not companies. A longlist of a few hundred engineers, product leads, and operators who match the profile.
3. Watch for change. A signal such as leaving a job, registering a company, or making a first hire matters more than any static fact about the person. Data enrichment keeps the list current.
4. Find the warm path. Check who on the team, in the portfolio, or among co-investors already knows them.
5. Meet with no ask. A first coffee six months before the raise is worth more than a pitch meeting the week the round opens.
6. Score when they raise. Apply the fund's founder scoring bar the same way you would to any other company. Scores from every channel feed one deal flow scoring view, so a scout referral and a watchlist name compete on the same bar.

Worked example: a scout and watchlist program

Fernhill Capital is a fictional pre-seed fund investing in developer tools. Over one year it runs two programs side by side.

• Scouts: 12 operators each receive a small share of carry. They send 90 referrals. Fernhill meets 31 founders and invests in 2.
• Watchlist: the team lists 300 senior engineers at infrastructure companies who fit its founder profile. Over the year, 14 leave to start something. Fernhill meets 9 of them before they open a round and invests in 2.

Both programs produced two investments. The watchlist cost less partner time per meeting and got Fernhill into both of its rounds before term sheets from other funds arrived. The scout program produced more variety, including one company outside the developer tools thesis that the partners chose to back anyway. Fernhill keeps both and tracks yield per program each quarter.

Common VC deal sourcing mistakes

• Measuring the pipeline in deck count. Two hundred decks a month says nothing about whether the right founders are in them.
• Sourcing only from your own network. Networks repeat themselves. Founders without connections to the partnership never appear.
• Paying scouts for volume. Pay for referrals that reach a partner meeting, or the fund gets a flood of weak introductions.
• Keeping relationships in one partner's head. When that partner leaves, the history goes too.
• Arriving at the round. If the first contact is the pitch meeting, the fund is competing on price and speed with everyone else.

How ScoringFactory approaches VC deal sourcing

ScoringFactory learns a fund's bar from the founders it backed and the ones it passed on, then finds and ranks founders and companies that fit, before and during a raise. Each meeting, score, and note stays with the person, so the fund builds relationship intelligence it can plan from: who to meet next, and who to introduce to whom. Partners make every investment decision. See the venture capital use case.