Deal Sourcing

The process of finding startups to invest in — the first step in the angel and venture investing funnel (sourcing → picking → winning → adding value → following on).

The key pathology in sourcing is Adverse Selection: lazily seeing only deals that come to you through warm channels, which biases toward already-legible opportunities and against the outliers worth finding. The antidote is building multiple distinct deal flow channels — portfolio founders, Twitter/social media, accelerators, AngelList, Republic — combined with outbound: cold-reaching companies growing fast that wouldn’t otherwise appear in the network.

Investor-to-investor reciprocity is a compounding sourcing loop: sharing a promising deal with other investors, then waiting to see who sends deals back. Those who reciprocate become a sustained deal flow source and effectively co-underwrite the effort of finding new opportunities.

Pattern-matching is built through volume: reviewing YC batch companies systematically, writing small checks to build feedback loops, and revisiting investment memos to track which hypotheses proved true and why.

Where this appears

• An Intro to Angel Investing… (tweet)