The Challenges in Deal Sourcing - 03/28/2008

I recently read the book, Winning Angels: The 7 Fundamentals of Early Stage Investing.

The 7 Fundamentals of Early Stage Investing

The first stage outlined in the book, Sourcing, concerns how to you get access to good deals and most importantly, good deals that are of interest to you. Sourcing is by far the first big challenge for new investors, and in my opinion one of the most inefficient stages in the early stage investing ecosystem. I think for many investors, sourcing is a significant ongoing challenge. I know of investors who for years have not made a single investment. Sometimes I wonder if they will ever make an investment, but I think the main problem is effective sourcing.

In the section on Sourcing, the book outlines a number of strategies used by professional angel investors to source deals of varying quality and quantity. Some of them are fairly obvious, from networking and personal meetings, to joining an angel group, to utilizing the services of matchmaker, to doing press interviews. Some of them require a lot of work, writing a book for example: over 1000 hours of investment required; teaching an entrepreneurship course, 1-2 years to find a teaching opportunity then 3-4 months to teach a course. Then hopefully, some deals will follow.

Many of the strategies involve latching on to one or more successful angels, sending good deals to them when (and if) you get one, and hoping the favor will be returned. There is a perspective from many successful angels that focus is important: if you can become known as the go-to person for a category of investment, and become fortunate to have a success or two behind you, the deal flow will increase substantially for you within this focus area.

Angel groups are a very common way deals are sourced and reviewed. In the angel group I participate in, Monadnock Angel Investors, we are fortunate to have a feeder relationship with the local small business development center from our university. They keep an eye out for deals, help the entrepreneurs prepare business plans and strategies, and when the time is right, bring the deals forward to the investors.

Even with all this, finding quality deals in an area of technology I am comfortable with is still a challenge. One piece of critical advice I did pick up from the book was, “some of the best sourcing activities are utterly unique (page 33).”

I have always been one to try work against the grain. So how can I apply this? I need a totally unique sourcing strategy.

My idea: create a group of promising opportunities myself and share them with my network. I have some promising business ideas. This needs some thought but I think it will work.

Winning Angels: The 7 Fundamentals of Early Stage Investing - 03/23/2008

I recently read this book on best practices in early stage angel investing, written by David Amis and Howard Stevenson.

The physical quality of the book is actually quite low, with the pages seeming to be nothing more than photocopy-quality printing. Some of the charts and all of the photos are completely unreadable. I did find […]

Nashua, NH company AutoVirt gets VC investment - 03/05/2008

I saw this come through the other day, it is not often you see companies in Southern NH show up on VentureSource News. For those that are not familiar with VentureSource, it is a service from Dow Jones that gives you access to an extensive database of private and public companies. It is fairly expensive […]

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