Sourcing by the Numbers — How We Found our First 80+ Investments at Precursor

One of the most discussed things in venture capital is the question of sourcing. Where do investors find the best companies? What’s the best way to get something in front of an investor you want to approach? Which channels or paths actually work?

In an attempt to answer these questions based on the companies that we decided to fund, I spent some time looking at how we actually found our first pool of investments at Precursor and thinking about what that says about the channels that actually work best for us.

We have been very busy at Precursor and made our 80th investment in late 2017. We try to cultivate an open, approachable style here at Precursor and we often invest in founders who are not well known to us at the time that we choose to invest. And, as one of my colleagues pointed out, even two people on the team here at Precursor were not well known to me before they joined us:

• Sydney Thomas (Associate and Head of Operations): We are very lucky to have Sydney on the team and she has made a big impact on Precursor. I originally met her through one of our Fund I LPs; she was not someone in my network before we met and talked about having her join me at the fund.
• Lindsey Maule (Head of Cryptocurrency Research): Lindsey has been the driving force behind our exploration and investment activity in blockchain and cryptocurrency. I met her through one of our existing portfolio company founders and she was well outside of my network before that introduction.

Classifying sourcing channels is particularly difficult. For example, I have people in my network who are entrepreneurs, college classmates and angel investors all at the same time. How do you classify such a person? I’ve tried to think of the context in which the introduction was made when assigning sourcing attribution, but I’ll admit that the data could be cut in different ways and yield slightly different conclusions. I think that’s important context to keep in mind if you have questions about the data.

I’ll leave it to the reader to draw conclusions from the data above, but a few things stood out to me looking back on the companies that made it into the Fund I portfolio.

1. A great deal of our Fund I portfolio companies came from our Limited Partners (LPs).
   I was initially surprised by the large percentage of the Fund I portfolio that came from our limited partners. Upon reflection, this was less surprising; a good portion of our Fund I LPs are General Partners at venture funds whose entry point is several stages later than where we get involved at Precursor and those folks have access to talented entrepreneurs who are too early for their firms.
2. Direct outreach is a very important channel for Precursor.
   I don’t want to confuse direct outreach with cold outreach. Direct outreach is people who reached out to Precursor directly without going through an intermediary. It’s interesting to note that many of the people who reached out to me directly were known to me but not people I had backed before or where I had a particularly close relationship. Many of them were first-time founders who reached out for their first ventures.
3. We get a lot of referrals from founders we know who are not in the Precursor portfolio.
   Founders I had backed prior to Precursor and non-portfolio founders represented a meaningful portion of the companies that ultimately ended up in our portfolio. Thank you to many of the folks I backed at SoftTech or who I have met in my travels who were kind enough to send good people our way.
4. There is no predictable channel that delivers the most interesting, highest quality companies that end up in our portfolio.
   I hope the chart above gives you some sense for the wide breadth of channels that work for us. We have gotten good referrals from really late stage VCs, law firms, banks and even an LP who didn’t invest in Fund I but understood our strategy.

For those of you who are thinking about how to get in touch with us, I hope this short post gives you some insights on the many ways you can get to us and get a serious look.

For those of you who want more detail on what the categories mean, I’ve provided some descriptions below.

Description of Categories

To simplify analysis, here’s a summary of what each of the categories in the bar chart represents.

Accelerator: Any program like YC, Techstars, 500 Startups, etc.

Angel Investor: Someone who regularly invests in startups but doesn’t do it as a primary occupation.

Co-Investor: An existing investor in the company who sent it to us to participate in the same round.

Direct Outreach: This is not a catch-all for cold outreach. This category captures founders who reached out to us directly and not through any intermediary channel.

Fund I LP: Any company that was referred to me by a Fund I LP where my primary relationship with that person is as an investor in Precursor Fund I.

Late Stage VC: Anyone who invests later than Series B as their primary entry point.

Non-Portfolio Founder: Any founder or entrepreneur I know but have not backed through Precursor, SoftTech or in my personal angel portfolio.

Personal Connection: This is a catch-all bucket for people who I know professionally or personally but do not fit into any other bucket listed on the chart.

Portfolio Founder: Covers any person who was a Founder at Precursor Fund I company at the time I made the investment.

Previously Backed Founder: Refers to anyone who I had backed at SoftTech, In-Q-Tel or through my own angel portfolio.

Seed Investor: All referrals from existing investors at institutional seed firms.

Series A Investor: All referrals from investors whose primary entry point is Series A.

Service Provider: This bucket covers banking partners, accountants, lawyers, and other firms that provide valuable services to startup companies.