What good deal flow looks like
Deal flow is counted in cases that fit your thesis: the sector, the stage, a ticket you can write, arriving through someone who knows what you look for. Enough of those to decline most of them is a good year. A pile of decks from strangers is a cost, and the picks do not improve with the 200th one.
Declining is the normal outcome, so build for it. The Angel Capital Association’s guidance, drawn from American angel groups, puts 10 to 25 per cent of applicants through to a screening stage and 25 to 50 per cent of those reaching due diligence into a funded deal, which leaves a low single-digit share of applicants funded.
For Nordic scale, the Danish network DanBAN describes 400 to 600 startups a year passing through its deal flow. A business angel (forretningsengel) who wants to make two investments a year needs a flow wide enough to say no to nearly everything.
The sources and what they yield
Each source brings different opportunities and demands different amounts of time. Start with cases that someone else has assessed, then broaden your sources as you gain experience.
| Source | What it yields | What it demands of you |
|---|---|---|
| Angel networks | Cases other angels have already looked at, co-investors for the ones you like, and someone to lead. Startups looking for investment reach our members through NorBAN’s digital channels, and every member decides alone what to do with them | A membership, the meetings, and looking at other members’ cases in return |
| Co-investors | The cases a trusted angel has screened and wants to share the round on. The best source at every stage of an angel’s career | Sending your own good cases back, and the time to build the trust first |
| Incubators and accelerators | Early, coached cases that pitch well, with a demo day each cohort. The incubator layer in Norway is a publicly co-owned national network: Siva co-owns more than sixty innovation companies across the country and publishes a directory of them | Everyone in the room sees the same case on the same day. Assess the underlying business separately from the quality of its coached pitch |
| University environments | Research-based companies with heavy intellectual property and long horizons, through the technology-transfer offices attached to the universities and university hospitals | Patience, technical judgement you may need to borrow, and a long wait for revenue |
| Equity crowdfunding (folkefinansiering) platforms | Priced rounds on public campaign pages, with terms set by the issuing company and a minimum subscription the issuer chooses. A platform must hold an authorisation from Finanstilsynet under the Crowdfunding Act or operate under an investment-firm licence, which carries different duties; Finanstilsynet’s register shows who holds which | A passive position on a wide register, bought on the issuer’s terms without negotiation |
| Events | Calibration against forty pitches in two days, and the co-investors and funds who attend the same ones. The conferences worth the trip are listed separately | A ticket, the days, and the temptation to commit on the spot |
| Portfolio founders | Their peers, often before the raise is public. A founder you have been useful to sends the best referrals you will ever get | Being useful after the money, which you owe anyway |
As a first-time angel, start with a network and one or two co-investors who can share their assessment of each case. An angel with a sector thesis adds the incubators and technology-transfer offices in that sector, where the cases are technical and the room is small. Crowdfunding platforms show what a market is pricing, and rarely fit a thesis.
Referrals and being worth referring to
A referral gives you someone else’s initial assessment before you spend time on a case. An American study of angel-group practice, published by the Angel Capital Education Foundation in 2007, found that a cold business plan rarely advanced past pre-screening, and ranked the angel’s own network of trust first, with lawyers and accountants who invest themselves close behind.
The paper describes American angel-group practice in 2007. Use a referral as an initial assessment, then apply your own screen. Put cold approaches through the same screen as other cases. They arrive without a referrer’s assessment, which is no reason to reject them automatically.
People are more likely to send another case when you have handled the last one well. Make these habits part of every referral:
- Answer within a week, even with a no, because a referrer who hears nothing assumes you are not looking.
- Decline with the reason, in one sentence the referrer can pass on to a founder, because founders talk to each other and so do the people who introduce them.
- Share credit on co-investments, and bring the referrer into rounds that suit them.
- Tell the referrer what happened. A case that closed, or a founder who turned out well, is what makes the next introduction worth their effort.
A visible thesis
Referrers can only match cases to a thesis they know, so publish it. A profile stating your sectors, stages and ticket range, on the networks you belong to and where founders look for investors, filters inbound before it reaches you. The founders who fit will find it, and most who do not will read it and move on.
A public profile also attracts unsuitable approaches. When a deck falls outside your sectors, a one-line decline referring to your thesis is enough.
Keep the thesis public and your decisions private. Which companies you looked at, what you thought of them and what you paid belong to you and the founders, and a referrer who sees you discussing one case in public will not send you the next.
Tracking the flow
Start with one spreadsheet and change systems only if the volume becomes difficult to manage. For every case record the source, the date it arrived, the stage it reached, the decision and the reason in a few words. The entry takes a minute and it is the only record you will have of why you passed on a company that comes back a year later.
Each quarter, sort the sheet by source. Spend more time with sources that brought cases worth investigating, and keep replies to consistently unsuitable cases brief. After a year the sheet tells you where your investments came from, which is the only measure of a source that matters.
From flow to screen
A case is ready for screening when its sector, stage and ticket fit your thesis and its deck can be read in twenty minutes. Those go into the first screen, which decides whether they get a meeting.
Everything else gets a decline within days, short and polite, naming the mismatch. A prompt reply lets the founder move on, encourages the referrer to keep sending cases and leaves you more time for opportunities that fit.