SSTI Conference Brief: Successful strategies for strengthening deal flow

One of the hottest topics at SSTI’s 2017 Annual Conference centered on helping communities build the investment system necessary for local entrepreneurs and startups to thrive.  Led by several panels of experts, the conversations around this topic led to many great ideas, thoughtful solutions, and tough realities. This week we begin a series of stories on how tech-based economic development organizations can help communities ensure a vibrant investment system. This first installment focuses on the necessity of creating a strong deal flow to stimulate the growth and success of the system. In future installments of this series, SSTI will cover topics such as why it is necessary to say no to a deal and building an investment team.

“It doesn’t matter how much money a fund has or how well it is managed, having access to good deals creates a successful fund.” – Conference speaker

From rural communities to urban cores, SSTI panels of experts highlighted how important the quality of deals was to the success of their managed funds. Whether the goal of the fund is to achieve a return on investment (ROI), spur job creation, or achieve a combination of the two; the region’s deal pipeline is key to the success of the fund and the necessary first step in launching a fund is having investment-worthy deals, the experts agreed. 

To achieve this goal, our panel of experts and participants provided several strategies and tips, including:

• Identifying the anchor institutions that have the potential to create investment-worthy companies. In West Virginia for example, the goal is to focus on building out from the state’s urban communities and their universities in concentric circles of deal sourcing until those circles cover the entire state.
• Building upon affinity networks to help develop viable startup companies. In Arizona and Virginia, universities play an important role in helping connect startups to potential mentors, team members, and others that will help move the technology from the idea stage to a company ready for investment.
• Providing services that help foster successful entrepreneurs now and cultivate the next generation. In Houston, successful biotech companies are being given the tools to succeed through the provision of lab space and/or equipment, as well as building teams that allow investors to focus on the technology.  In West Kentucky, they are working to create a next generation of entrepreneurial-minded young adults. In both cases, this creates a pipeline of talent ready to succeed.

Our panel of experts stressed the need for strong deal flow for two reasons. First, a larger number of high-quality deals allow the organization to say “no” to bad deals while still achieving the fund’s mission. Being able to say “no” on bad deals creates a brand value that builds confidence among regional and outside investors to co-invest with an organization.

Second, a strong deal flow helps address the unavoidable “misses” and maintains the likelihood of a successful (maybe even self-sustaining) fund. As our experts discussed their misses, the ones that most impacted them were the deals that should have worked out – good team, good idea, good market, etc. Regardless of all these factors, the startups still failed. The experts contended that the strong deal flow cushion in the ecosystem allowed them to bounce back from an unsuccessful investment while ensuring that they were still able to meet their success metrics.