#011: Deal Flow Discipline -  Systematic Approaches to Deal Sourcing and Evaluation for a VC

At its core, VCs are in the business of identifying the most promising startups that can deliver outsized returns. It’s really that simple, even if the execution isn’t. This fundamental reality — the need to generate returns that justify raising a fund in the first place and keeping the lights on - shapes everything about how they approach deal sourcing and evaluation. It’s not just about finding good companies, but also about finding the great ones that can return an entire fund. This creates an interesting dynamic where VCs are simultaneously optimistic dreamers (believing in entrepreneurs tackling impossible problems) and ruthless pragmatists (knowing that most ventures won’t make it). Understanding this tension helps explain why they cast such wide nets during sourcing but then apply increasingly rigorous filters as the deals progress. They’re not just looking for businesses that work; they’re hunting for the unicorns that make the whole venture model worthwhile.

The Deal Flow Reality

In VC, everything starts with deal flow. You can have the sharpest investment thesis and the deepest pockets, but if you’re not seeing the right opportunities, you’re dead in the water. Most of us know this math already, but it’s worth restating: the funnel is brutal. You’re looking at roughly 1,200 companies to make maybe 10 investments. That’s less than a 1% hit rate, which means your sourcing engine better be firing on all cylinders. 

The game has two parts that are equally critical. First, there’s deal sourcing —  how you find these opportunities and get them in front of you. Then there’s evaluation, which is the art and science of figuring out which of those 1,200 companies deserves your time, your money, and your reputation.

What’s interesting is how much the sourcing side has evolved. The days of waiting for entrepreneurs to knock on the VC door are long gone. The best firms I know are proactive hunters, not passive gatherers. They’re building relationships years before they write checks, cultivating networks that become their early warning systems for breakout companies.

In this piece, I aim to share what I’ve learned about how the most effective VCs approach both sides of this equation, from building deal flow that converts to developing evaluation frameworks that help them spot winners before everyone else does. 

Where Do VCs Find Deals?

The sourcing landscape has gotten pretty sophisticated over the years, but the fundamentals haven’t changed all that much. Networks still drive the bulk of quality deal flow. Research suggests over 30% of deals come through professional connections, with another 28% flowing from referrals. There’s something about a warm introduction that carries weight, whether it’s coming from another investor who knows your thesis or a portfolio founder who’s spotted something interesting in their ecosystem.

The event circuit remains productive, although it has evolved beyond traditional demo days. While the demo days of top accelerators remain important and a good metric of validation, many firms are finding value in more targeted gatherings, industry-specific conferences, university pitch competitions, or even smaller meetups where founders are still in the early stages of considering raising capital.

Digital platforms have become table stakes, too. Most firms maintain a presence on platforms such as AngelList, Crunchbase, and similar databases, though the real value often comes from more creative approaches. Some teams are getting interesting results from monitoring technical communities or simply staying active in relevant LinkedIn and X(Twitter) conversations. There’s also growing appreciation for local tech media; publications with reporters embedded in specific ecosystems who often surface interesting companies months before they appear on TechCrunch or in mainstream coverage.

Cold inbound remains a significant channel, even if the conversion rates are predictably low. What’s interesting is that the companies that break through this way often have something compelling that cuts through the noise: exceptional early traction, a team with deep domain expertise, or they’re addressing a problem that’s been on the firm’s radar.

The most effective approach appears to be maintaining a presence across multiple channels while being thoughtful about where to invest time and energy, based on what’s actually producing quality opportunities.

Best Practices for Sourcing Deals

Building a sustainable sourcing engine is harder than it looks, and it does require intentionality. The firms that consistently see the best opportunities early aren’t just getting lucky; they’re following a few key principles.

1. Make your network work for you. This sounds obvious, but most people do it wrong. It’s less about who you know and more about who thinks of you when it counts. It’s about being genuinely useful to the ecosystem over time. The good deal sources tend to be people you’ve helped before; portfolio founders who remember when you made that key introduction, operators you’ve given candid feedback to, even other VCs whose deals you’ve passed on gracefully. When a talented founder starts thinking about their next round, you want to be one of the first names that come up.

2. Share your thesis openly. The days of playing your cards close to your chest are over. Investors like David Teten have noted that openly discussing your investment focus actually generates better deal flow. When you publish that piece about why you’re excited about vertical SaaS or write threads about automation trends you’re seeing, you’re essentially putting up a signal that attracts relevant founders. It’s marketing that doesn’t feel like marketing, and it helps filter out the pitches that were never going to be a fit anyway.

3. Leverage AI to amplify your reach, not replace your judgment. The smartest firms are starting to use AI tools to scale their sourcing in ways that weren’t possible before. This might mean using AI to monitor thousands of startup websites for early traction signals, analysing patent filings to spot emerging technology trends, or even scanning social media and technical forums to identify promising founders before they’re on anyone’s radar. Some are building custom models to score and prioritise inbound deals based on historical patterns. But the key is using AI as a force multiplier for human insight, not a replacement for it. The goal is to surface interesting opportunities you might have missed and free up time for the relationship-building and deep evaluation that still require human insight.

4. Lead with value, not interest. The relationship shouldn’t start when you write the check (if you write the check). Making a useful introduction, giving thoughtful product feedback, or connecting a founder with a potential customer — these gestures before there’s any deal on the table often matter more than the terms you eventually offer. It’s also a great way to actually understand a business before you have to make a decision about it.

Structuring a Deal Sourcing Process

While some quality deals come from unexpected places, the firms that consistently perform well don’t rely on serendipity alone. They’ve built repeatable systems that ensure nothing promising falls through the cracks.

1. Start with clarity on what you’re looking for. This may sound basic, but you’d be surprised how many teams operate with unclear investment criteria. The most effective firms can articulate their focus precisely  -  “B2B SaaS in Europe, seed to Series A, focusing on cybersecurity and fintech.” This clarity does two things: it helps you proactively target the right sectors, and it makes saying no much easier. Many top firms document their “ideal deal” checklist, which helps investment associates spot opportunities that fit and saves everyone time on pitches that don’t.

2. Treat it like a sales funnel. You need consistent inputs to generate quality outputs. The most disciplined teams block time weekly for sourcing activities, including reaching out to contacts, attending founder meetings, and following up on warm introductions. They use CRMs like Affinity religiously, logging every interaction and setting follow-up reminders. Regular pipeline meetings keep deals moving through defined stages: initial contact, first meeting, partner review, due diligence, and term sheet. It sounds mechanical, but when you’re juggling dozens of potential investments, structure prevents good opportunities from getting lost in the shuffle.

3. Make it a team sport. The strongest sourcing happens when everyone’s involved , not just the investment team, but ops, marketing, even your EAs, who often have interesting networks. Some firms run formal scout programmes or assign analysts to proactive outreach in specific sectors. Your LPs can be goldmines too; many are operators or successful entrepreneurs who see deals before they hit the market. The venture scout model has become particularly interesting lately (I wrote about it here). There is a real opportunity for the right people to add value while building their networks in the process. The key is creating a culture where sharing leads feels natural and is rewarded.

4. Build in smart filters. Volume without focus is just noise. Develop pattern recognition for quick nos, these are deals outside your thesis, obvious red flags, or founders who aren’t coachable. Many firms use screening calls or brief Investment Committee discussions to decide what deserves full attention. The goal isn’t to be right about everything early, but to allocate time wisely.

5. Keep refining what works. Track your metrics ruthlessly. Which channels produce the highest-quality deals? How many first meetings convert to term sheets? If cold outreach isn’t working but referrals are, double down on relationship building. Regular retrospectives on wins and losses could reveal blind spots; maybe you’re underrepresented in a hot sector or missing deals in a specific geography.

Evaluating a Startup’s Fundamentals

Once you’ve got a deal worth pursuing, the real work begins. Every firm has its own evaluation framework, but most are looking at the same core elements: the team’s ability to execute, the market opportunity they’re chasing, whether their product actually solves a real problem, any early traction they’ve generated, and the underlying unit economics.

The weight given to each factor depends on stage and sector, but the fundamentals remain consistent. An exceptional team in a huge market can overcome product gaps. Strong traction may compensate for founder inexperience. A truly differentiated product might justify investing before the market fully materialises. The art is in knowing which trade-offs make sense for the firm’s thesis and risk tolerance.

What has evolved significantly is the increasing systematisation of firms in this process. Gone are the days of purely gut-driven decisions, though intuition still matters. The most effective evaluations combine rigorous analysis with pattern recognition, using structured frameworks to ensure nothing critical gets missed while still leaving room for the outliers that break conventional rules.

I covered the detailed mechanics of building an evaluation process in my article on startup due diligence — the frameworks, the questions to ask, and how to structure your diligence to inform better decisions rather than just check boxes. Instead of rehashing all of that here, I recommend checking it out if you’re looking to refine your evaluation approach.

The Importance of Relationship-Building

If there’s one thing that separates consistently successful VCs from the rest, it’s understanding that this business runs on relationships. Venture capital might look like a numbers game from the outside, but anyone who’s been doing this for a while knows it’s fundamentally about people. The deals that matter most, the ones that define careers and funds, almost always come down to relationships that were built long before anyone started talking about valuations or term sheets.

The long game pays off. Some of the most legendary investments happened because an investor took time to build trust early. Great VCs treat relationship-building like a long-term investment strategy. They’re not just networking at demo days; they’re having coffee with interesting founders who might not be ready to raise for another two years. They’re offering honest feedback on products, making useful introductions, and staying in touch without any immediate agenda. When that founder eventually does decide to raise capital, guess who gets the first call?

The eBay story is instructive here: Pierre Omidyar had two offers on the table — one from Benchmark and another that valued the company 2.5 times higher. He chose Benchmark because of his existing relationship with the partner, not because of the money. That relationship-driven decision turned into one of the greatest venture returns of all time. It’s a reminder that founders often care more about who they’re partnering with than what they’re being offered.

How you say no matters as much as how you say yes. Your reputation in the founder community isn’t just built on your wins; it’s built on how you treat every entrepreneur who walks through your door. There are countless stories of investors whose most successful deals came from founders they’d previously turned down, who remembered being treated respectfully and later made valuable referrals because of it. Every interaction is relationship-building, and today’s polite pass could be tomorrow’s golden referral.

The relationship deepens post-investment. Writing the check is just the beginning of what’s often a decade-long partnership. The VCs who consistently generate strong returns are the ones who stay genuinely engaged. Making key introductions, helping with strategic decisions, and supporting follow-on rounds. This isn’t just good business; it’s good relationship management. Portfolio founders who feel supported become your strongest advocates, referring other exceptional entrepreneurs and often returning with their next ventures.

Build a community within your portfolio. Smart VC firms create opportunities for their founders to connect with each other, whether it's office hours at the firm, regular mixers, or even just facilitating intros between complementary companies. When your portfolio founders are helping each other succeed, you’re not just building individual relationships; you’re creating a network effect that strengthens your entire ecosystem.

The math is simple: strong relationships help you source better deals, win competitive situations, and support portfolio companies more effectively. In a business where information and trust are your primary currencies, relationship-building isn’t just important; it’s the foundation on which everything else is built.

Conclusion

At the end of the day, venture capital remains a people business wrapped in a financial framework, but that doesn’t mean you can wing it. The firms that consistently see the best deals early understand that exceptional founders solving meaningful problems don’t just appear; they’re found through disciplined sourcing, rigorous evaluation, and genuine relationship-building over time.

The venture game has gotten more competitive, especially in the AI investing landscape, but the fundamentals haven’t changed. Whether you’re a solo GP or part of a larger partnership, success comes from treating these disciplines as worth mastering. Build systems that scale, relationships that endure, and processes that help you make better decisions faster. Also need to be systematic about how you source, rigorous about how you evaluate, and genuinely helpful in how you engage.

The sourcing and evaluation landscape will continue to evolve as new tools emerge and markets shift. Still, the core challenge remains constant: being the investor that exceptional founders want to work with when they’re ready to build something meaningful. Do that consistently, and the exceptional opportunities tend to find their way to you. Everything else — the processes, the data, the evaluation frameworks- are just tools to help you recognise and support great entrepreneurs when you find them. 

Thanks for reading. I hope you learned a thing or two.