For an Angel investor, it is essential to build and maintain a quality deal flow to access the best possible investment opportunities.

For an Angel investor, it is essential to build and maintain a quality deal flow to access the best possible investment opportunities. Building and maintaining a quality deal flow requires a dedicated approach, process and time. The mechanics of building a deal flow is relatively simple. You define your investment criteria, you communicate to the world what you are searching for, and then you filter the opportunities that rise to the surface. Straightforward and simple, or?

Let us start by looking at the investment criteria, which preferably stand on an investment hypothesis and strategy. The purpose of defining investment criteria is to gain clarity as to what to invest in, why and how.

Looking at the investment hypotheses, it can in its simplest form, as an example, be the conviction the transportation and vehicle markets will change significantly over the next few years with the introduction and growth of electric vehicles and autonomous driving - and as such, investing in companies with new technologies targeting these markets is a good idea considering the market size and the potential.

Next is to define the investment strategy, which in the above example could be to invest in early-stage companies raising pre-seed or seed round capital. The strategy could also include factors such as investment and holding thresholds, value-contribution and extent of active work with the portfolio companies. Remember, the strategy is the chosen path or method to achieve the defined investment goal. The investment goal rests on the investment hypotheses, and can be consist of both quantitative and qualitative factors.

The more precise and well-defined the investment criteria are, the easier it will be to filter out, sort and categorize the investment opportunities. The criteria, based on the investment hypotheses and strategy, could include factors such as:

  • Sector or industry,

  • Business development stage,

  • Product maturity stage,

  • Business model,

  • Geographic focus,

  • Time-horizon,

  • Capital need (investment size),

  • Estimated market size,

  • Other investors' participation in the company.

With the investment criteria defined, the search focus for potential investees (companies of the "right" profile in search of capital and investors) can be narrowed down, which at the end of the day saves time and resources for those opportunities that matter most. Another benefit of a clearly defined set of investment criteria is that it becomes easier for others in your networks to help and provide you with leads, recommendations and introductions to potential investees of the "right fit".

Tapping into your existing networks is one way to expand your search for investees. Another way is through active participation and presence at investor events and forums, expanding your network with other investors, accelerators, incubators, investment syndicates, etc. There is a clear value in communicating and building a network with other investors as they might come across opportunities that might not be of the right fit for them but instead for you. What also helps is to build your own reputation through participation and providing your expertise in the merge between venture capital and industries subject to change or the introduction of new technologies.

A third way is to search for companies listed and potentially already invested in by others, by using Venture Capital and investment focused services such as CB Insights, PitchBook, Crunchbase - but also Angellist and capital raising platforms such as Republic, Fundable, Netcapital, StartEngine, and others. Researching and reaching out to the companies and their Founders using LinkedIn puts you in direct contact with those companies that you find most interesting.

Take into consideration that the search for high-quality potential investees can take time. Also consider the fact that although you might be ready to invest, the timing has also to be right for the potential investee. A silver lining to this is that it allows you to build relationships with and get to know companies and Founders better, ultimately making it easier to understand which are a better fit for you than others. This last factor might come across as trivial, but in fact, it is far from trivial given that equity holdings tend to last a couple of years.

With a selection of potential investees that meet your investment profile, assuming that the timing and fit are right, a high-level due diligence can serve as a secondary screening. This secondary screening allows you to save time and resources for more in-depth validations and valuations for those companies that are of the best fit. An example of factors to look at in the second screening include business and product KPIs, but also legal and structural factors such as the company's cap table and formation.

Defining and establishing your investment criteria, working with your network, making it clear what you search for, and building relationships with other investors, Founders and companies should be a well-worth exercise. Doing this should ultimately allow you to gain a high-quality deal-flow of opportunities that best fit your preferences. As you go along you will see what works, re-iterate to improve, and gradually step-by-step improve your processes and approach.