Some family offices have been investing in startups for decades - but many are just getting started. This checklist is aimed at family offices looking to improve their access to "day zero" deals.
First, seeking day zero deals is just one part of a larger set of considerations. In our discussions, we find family offices are looking to implement operating models and strategies that display the following features:
Over the next few weeks, we're going to look at each of these points in detail. Today, we're focusing on "timely access to a wider range of high-quality, day zero deals" - which ranks as a core concern for many of the family offices and HNW investors we meet.
In fact, consistent access to high-quality "day zero" deals is the key requirement. Some family offices have great referral networks - but in our experience, this forms a tiny fraction of the family offices seeking to get into venture deals.
It's hard to overstate the advantage that established VCs have in this area. Most established VCs have referral networks and syndication partnerships that they have built up over years - and in the case of some of the older Valley VCs, decades. For the most part, they work pretty efficiently - and the deals the best-placed VCs see are generally quite fresh because of this.
But that doesn't mean all of these deals get funded. Many of these "day zero" deals fall outside of the mandate the VC has. They may be raising capital at the wrong stage or valuation, raising using a non-standard instrument, or playing in a category that is outside of the VC's focus. The VC may be between funds or simply have too much on their plate.
How can you make sure that these deals come to your door next? Or, better still, first? There are several weapons that family offices can bring to the battle for dealflow.
If you want to access day zero deals, you can't just stand in the background and hope people will somehow find you. Any brand strategist would tell you - you need to come out and make a strong statement about your brand, your DNA (and knowledge, experience, and success), your capability in terms of capital to invest, and your preferences. They say, making a direct statement to entrepreneurs will allow you to see more day zero deals, and they'd be right.
Also, what kind of brand are you? Are you a family car, or a Ferrari? Few VCs can sensibly claim to be a Ferrari - but such a positioning is not beyond the reach of a fast-moving family office. And on that subject...
So now that you've solved the deal flow issue, what about analysis and follow-up? As we explored in our last blog post, deal decision windows are compressing, and today some deals get done in three days or less. This issue of "decision time compression" can either be an advantage, or a big problem for family offices. Family offices that have the ability to make fast decisions may be able to trump a cumbersome deal process at a large VC.
In order to successfully compete, family offices need to ensure there is an efficient way to get the deal analyzed within the same (or better) timeframe as the largest firm in their area. Losing a great deal because you couldn't get to a decision fast enough is going to happen a lot in the future - and unless you are laser-focused on using data and automation - and the power of deal syndication - to get to a decision faster, you probably aren't going to get into the better deals. At Hatcher+, our decision-making process is down to hours, rather than weeks or days. This, we believe, will be a key factor in our success going forward.
I find family offices don't focus enough on the history of their success and their amazing stories when meeting with entrepreneurs. Almost every family office I've ever met with has some great stories about how they built their businesses. Don't keep your principal hidden in the back room. Letting entrepreneurs know that the personal network and business skills of a billionaire (or highly-successful technopreneur) are going to be available to them could help seal the deal.
Once you've focused on the three points above, I predict the dealflow network will find you. But if you want to get proactive, here are some great places to start: our VAAST platform sees, on average, around 30 times the number of deals a typical VC sees - and all our LPs get access to it. Alumni networks are great places to source deals and meet budding entrepreneurs, as are social organizations like YPO and TIE. Angel networks (some of them!) - and VCs themselves (the ones that enable zero-fee co-investment) are also good sources for deals.
But get your speed and your story ready first - come to the battle with all your weapons sharpened, and ready.
Hopefully, these suggestions are helpful. As always, let us know if we can help.
John is a serial entrepreneur and investor, and the Founding Partner of Hatcher+, a next-generation, data-driven venture firm that utilises a massive global database in combination with AI and machine learning-based technologies to identify early-stage opportunities in partnership with leading accelerators and investors worldwide.
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