One question that we are regularly asked is where do we find our deals or how do deals find us? We track all deals we “see” at Zelkova, along with some basic data points. I define a deal we ’see’ as one where I have at least a one-hour conversation with the team. In the past two plus years we have “seen” more than 500 deals, and here is how the stats break out:
The above chart is only interesting in that it gives a sense of where VCs (Zelkova in this case) get their deal flow from. The chart below, which shows the sources of our approximately 15 investments over the past two years, is more interesting.
Some takeaways by category:
Event or Conference
We attend several great events each year. Some of these include TechCrunch50, Open Angel Forum, Under the Radar, The Hatchery, AlwaysOn and many others I’m missing.Â Given the vast number of companies we see each year at these events, it makes sense that a good portion of our investments are from these sources. We tend to always try to attend the events that have a heavy screening process, providing quality deals for us to look at.
VC / Advisory Group
As you can see, this category is “over-weighted” in the number of investments as compared to source of deals. This isn’t surprising to me, as we tend to do syndicates (almost by rule). Itâ€™s not about a herd mentality, it’s about a probability of success mentality. First and foremost, we want to find deals that will be able to close funding, and partner VCs are critical to this. Secondly, other VCs help drive success, bringing more minds to the table and more resources (contacts, ideas, capital).
Friend / Family
This category is mostly self-explanatory. It includes not only friends and family but also includes colleagues we have worked with in the past.
The lack of any investments in the cold-call space has nothing to do with a bias or a “club.” Most of the cold calls that come in are outside of our area of expertise, but we take the time to speak with the teams. We feel itâ€™s a duty of ours to help entrepreneurs, if what they do is remotely close to what we do. (Note: for each entrepreneur we speak to, we get about three or four that are totally outside of our areas of help). Itâ€™s also no secret that a warm introduction is much better than a cold call. Less-experienced entrepreneurs will try the spray-and-pray method; more-experienced entrepreneuers will try to connect to us through one of the other channels â€“ through another VC or at an event.
As you can see, we havenâ€™t funded any deals through existing portfolio companies — yet. I accredit this to the fact that we are a relatively new fund (two and a half years old) and many CEOs are very cautious in recommending companies to look at. The lack of investment from this source isnâ€™t surprising given the fact we have only “seen” around 15 â€“ 20 deals from this source.