Active Sourcing, Deal Flow And Network Building: How Should New Angel Investors Build A Pipeline

Ask any experienced angel investor and their first advice to novices or new investors would be to take the portfolio approach. But of course, that’s easier said than done because no one starts off with the right network for deal flow.

Having the right deal sourcing channels and the network to scout deals are critical for all angel investors. But this network to bring in the deals and identify new areas of growth for startups has to be cultivated and created over a number of years.

Of course, after some years of investing and building the right investment thesis, these networks grow to a point where deal sourcing happens automatically. But how can angel investors start off when they don’t have this support system in place? What are the best ways to source new deals and network-building channels in the market today?

That’s some of the questions we wanted to help answer with AngelX by Inc42, our four-week course that dives into the science and method behind angel investing. The likes of 100X.vc’s Sanjay Mehta, Innov8 cofounder and angel investor Ritesh Malik, seasoned entrepreneur and investor Pallav Nadhani, Arjun Vaidya of Verlinvest and GSF Accelerator founder Rajesh Sawhney have come on board as mentors for the AngelX programme. These mentors will guide aspiring investors into making the right decisions and at the end of the course, the learners will have the chance to even make their first angel investment.

The Tenets Of Deal Flow

According to GSF’s Sawhney, in the beginning, the best network is “the one you already have.” By that he means the professional contacts and peers that one already turns to for advice and guidance.

“There’s no dearth of opportunities to collaborate or find the right deal. The idea is to have an open mind when it comes to learning from these various players and leveraging their referrals.”

Helpfully, Sawhney has broken down his experience with building the network into four helpful tenets:

1. 1. Invest Consistently Regardless Of Cycles 
   2. Find The Right Collaborators
   3. Have A View Of Your Expertise 
   4. Build A Small Internal Team

These four principles should take the burden off of the shoulders of angel investors when it comes to finding new deals. The idea is to spread the responsibility to the network.

Collaboration Vs Competition

One thing most angel investors we spoke to were clear on is that the opportunity to invest is far larger now but the number of competitors with cheques is also much higher. So the deal flow will happen organically in many cases as more and more startups come through the typical discovery channels.

According to Inc42 data, over 950+ angel and individual investors participated in Indian startup funding since 2014 and this pool is about to grow bigger as more and more HNIs and executives turn into angels. Besides this, unicorn founders such as Sujeet Kumar, Gaurav Munjal, Vidit Aatrey, Varun Alagh and Sahil Barua were also among the most active angel investors in 2021.

Given this competition, a clear and precise thesis will enable angel investors to set a benchmark for themselves when it comes to future investments. However it would be a mistake to view this other angel investors as purely competition. It is not a contest, but an opportunity to collaborate, according to many angels.

For 100X.vc’s Mehta, the key is to take advantage of the ecosystem, the various online forums and now informal WhatsApp groups where deal opportunities may arise.

“These days, discovery is happening in a very informal manner in many cases. Someone you know might be chatting with you and might tell you about a particular startup or area of interest. That can be a starting point,” he added

Deeds Beget Deals

For any inexperienced angel investor, the thought of having a portfolio of 20 companies over the first two years might be daunting. When one does not have even one startup in their portfolio, it is not easy to have that vision. However, it is also an opportunity to create a brand or a reputation that will precede the angel investor.

When others in the market know that a particular angel investor is focussed on Web3, for example, this will make it a lot more easier for startups to approach them. This can be done through building an online presence by speaking at virtual seminars and events.

Patience is one value where Ritesh Malik does not compromise. While that means having a long horizon, but also taking non-investment decisions that will pay off in the long run. Angels can start off by backing founders and give them time and money in exchange for lower equity and a chance to learn, the Innov8 cofounder believes.

“When you ‘give’ something, you get something — in this case, referrals, word-of-mouth among the founder ecosystem. These things can be priceless. Leverage your ‘good deeds’ to build a portfolio.”

With AngelX, the goal is to eliminate all knowledge hurdles for many aspiring angel investors, beyond just having the right network to rely on for deal flow and keeping investments coming in. Take a look at what’s in store by clicking below.

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