In the venture capital game, many seem to think that money is the force of the war. Even if there are a lot of amazing opportunities, we have to be picky and select the opportunities that truly fit our criteria and vision. Consequently, we are not able to invest in all the projects (it is part of the game to build our anti-portfolio) and we need tools to help us manage the deal flows.
Deal flow is critical for all types of funds, whether they are venture capital, growth equity or LBO funds. You can imagine deal flow as a funnel helping us to select companies, as we can not invest in all the companies which apply for funds. Consequently, as a football coach, we have to make choices and only select relevant players at a given time… Except at daphni we’re talking about entrepreneurs and companies, not football players… 😉
At daphni, we are aware that opportunities are everywhere, and that good deal flow is not defined by quantity but quality. That is why we took the bulls by the horns and created our own tools to manage our deal flow.
What are these tools about? How do we identify good leads and how do we get in touch with the founders with ambitious projects?
1- What is deal flow?
First things first, let’s take a moment to explain what deal flow is (if you are a regular daphni reader or are already in the venture capital sector, this part might not be interesting for you so I suggest that you jump directly to the 2nd part of the article. If you are here for the first time, it may teach you quite a lot, so here we go!).
To be very schematic, you have 2 universes.
- the universe of entrepreneurs, launching their business, and seeking for funds to accelerate their projects, hire new talents, launch new products or expand in new countries. Anyway, they’re the ones at the center of the attention
- the universe of investors, who have skills to help companies grow…. and who have money (basically millions… or even billions!) under management, and who are looking for opportunities which are matching their investment thesis. You guest it folks, that’s us, daphni! And our investment thesis is ‘Build da City. For. Good.’
Both need each other, and that’s where the love story starts: entrepreneurs need skills, network, board members and a lot of other resources to scale their businesses. To do this, they need funds basically. And VCs have what it requires to help entrepreneurs achieve this goal and participate in building the future.
But it goes way beyond money: having enough financial resources is not a guarantee for success. We have seen a lot of counter-examples. Metrics are one thing, relationships between entrepreneurs and investors are another one. Anyway, where were we?
Oh right! So what is deal flow then?
Deal flow is all the potential investment opportunities that are available to a fund. Concretely, where do the different types of deals come from ?
- Most of the time, entrepreneurs apply by sending their pitch deck on the daphni platform (we will dive into this later on… 😉. At daphni, we receive at least 50 projects each week and we will tell you more about the tools we use for our deal flow management)
- Sometimes, we meet entrepreneurs that are referred to by other entrepreneurs,experts, LPs, corporates, …. Word-of-mouth ensures that qualitative opportunities reach our deal flow. That’s one of the reasons why community matters a lot at daphni. Our community introduces our team to many qualified opportunities
- Being on the market for years, we have proprietary deal flow related to our strong relationship built over years in the ecosystem
- Deal flow is also nurtured with a proactive sourcing activity by our investment team, based on defined criteria (targeted sector, profile of the founding team members, etc).
- We have developed a strong and qualified network of co-investors we trust that feed is with the deal they invested at an earlier stage or with new deals they are looking for a complementary co-investor
- Venture capital is an ecosystem. Meeting people and attending (shortlisted) events is also part of the job. Good opportunities can come from hackathons, demo days, start-up contests, etc.
- And last but not least, as any businesses, we are introducing data analysis and AI to source deal flow opportunities automatically
2- The deal flow management
There are inescapable tools for deal flow management in each VC fund. But as we are a venture capital mutant, at daphni we have our ‘secret sauce’. Let’s unveil our magic wand to find the startups which are going to Build da City. For. Good!
Daphni platform: a unique tool in the venture capital ecosystem
You may not know, but daphni is the only VC fund to have built its own tool to manage and evaluate its deal flow. We often define ourselves as a ‘VC-as-a-platform’. What does it mean? We are able to provide entrepreneurs with a platform where they can send their application with their pitch deck. It’s far more than a typical form you could plug on your front website.
You may be curious about where it goes after sending it. Let me open the doors and show you the adventure of the process once you’ve submitted it!
Let’s illustrate our explanation with a fake company, Roals.
When a founder sends his pitch deck, he often thinks that it will arrive on a generic email, falling into oblivion forever. Well, at daphni, we have one strong promise: EVERY MEMBER of the investment team (and we put the emphasis on this point) reviews every project and every entrepreneur can then get an answer within a maximum 10 days. Sounds crazy isn’t it? But you know, as investors, we know that an entrepreneur’s biggest matter is time, and we respect that. That’s precisely the reason why we make sure that every entrepreneur gets an answer as soon as possible. This is what the platform is about: centralizing all the pitch decks in one place, enabling every investor to have access and to appreciate the projects. And guess what, we also have an internal dedicated space for comments. A must have 😉
The platform is open to the daphni community, which is made of our limited partners, portfolio companies entrepreneurs and trusted experts. On one hand, they’re helping us making good decisions, and on the other hand, they’re helping entrepreneurs from their sector to make good calls. But don’t get us wrong, if you are an entrepreneur and are willing to send your application only to the daphni investment team, a transparent opt-in/opt-out system which allows you to choose with whom you want to share your application and pitch deck! We care about privacy and confidentiality.
In addition, we ask our community members to declare, before accessing a project, that they don’t have any conflict of interests, which avoids some hardships that may occur later on.
Let’s get back to our example, Roals. Here we can see that Roals has applied and is looking for 900K funding. The project will be reviewed by our investment team (and community members if they are opt-in’ed’ to have access to the project).
We also gather the whole daphni team each Monday morning during the ‘Da flow’, a team meeting where we discuss each one’s comments/questions about the projects. We told you folks, at daphni “Go collective or go home” is one of our mantras
Once the project has been reviewed, analyzed, and commented by the team, we decide the next steps and if we go for further explorations. To give you an idea, our deal flow which comes from our application platform is of around 50 deals/week. As you can imagine, we often say no. And that’s not as easy as it looks because it’s heart-breaking not to invest in exciting opportunities and projects matching our values.
But even when we say no, we always make sure to keep good relationships with applying founders and we can even recommend them to other investors of our network… and that’s leading us to the core of what daphni is all about: the community.
Da power of community towards deal flow
Besides the magic wand, daphni has also a super power: its community. You may be wondering why and how people outside the investment team of daphni are able to give their feedback on our deal flow. Well, it’s pretty much where things start to become interesting.
The initial statement is clear and humble: nobody knows everything, that’s why we’re stronger together. And we are no exception. But if you manage to gather the most different expertise in one place, the magic happens. The power of community is to provide different points of view on one deal. It helps us identify promising markets as well as address problems that we wouldn’t have imagined without the community. Being mainly generalist involves also getting the right expertise at the right time, expertise is getting more and more specific over time..
We are committed to create a special link with each member of the community and to ask them about their needs. They are also free to reach out if they ever got interested in a deal more than another. We have aligned interests with our community since most of the members are LPs in our funds and have strong interests to create value along with us in our portfolio companies but also at every step of our value chains.
That’s why we are also promoting transparency, collaboration and a friendly attitude. These are daphni values and they are even reflected in our offices (those who had the opportunity to come obviously know that there is no closed door).
Folks, let’s do a recap : the VC sector is surprising and good opportunities can come over from everywhere. There is no such thing as “one typical profile of entrepreneur”. Through our experiences, the daphni team is also convinced that entrepreneurship is for everyone and we advocate for more diversity within our ecosystem.
We hope this article enables you to understand how a VC fund such as daphni works and manages its deal flow, what are the tools for a good deal flow management, and what are our values towards the community.
If you must keep in mind one main idea: quality matters more than quantity! And at the end of the day, we know that venture capital is about taking risks, thinking big and differently 😉
Moreover, VC funds are crucial actors for this thriving start-up environment: it’s a synergy. Which means that we are very keen to help entrepreneurs and create connections. And do not forget that if we don’t invest in a first round, we might be interested in a future fundraising! 😎 (That’s what happened with our Yellow portfolio start-up Leocare!)
Thank you for reading this article. If you made it to the end, you might be an entrepreneur looking for funds so we have only one thing left to tell you: Apply on daphni platform!