Will Y Combinator one day fund 1,000 companies per batch? Its president, Geoff Ralston, doesn’t think that’s impossible. But for the tech press, the possibility creates a conundrum: We can do our best to pick favorites, but we can’t cover every single promising startup in its early days.
This situation, it turns out, creates an opportunity for an emerging source of startup curation: deal-flow newsletters.
“The early-stage part of the tech industry deserves to be documented as it’s where every startup’s journey begins, and there are so many compelling ideas being tried,” said Martin Bryant, whose PreSeed Now newsletter launched today. “This newsletter’s sweet spot is companies that have moved beyond an idea on the back of a napkin but are yet to raise external equity investment.”
Investors are the target audience of PreSeed Now and its peers, such as Spain’s Vermú. The new U.K. newsletter doesn’t have numbers to share yet, but Vermú does, and they show proof of demand: It garnered 4,500 subscribers in mere months.
Do investors want what deal-flow newsletters offer? And what’s in it for newsletter creators and the startups they feature? Let’s dive in.
The paradox of choice
There are several reasons why investors sign up for a deal-flow newsletter, Bryant and Vermú co-creator Aitor Rodríguez told TechCrunch.
Business angels are a big part of the readership, as are early-stage VCs — both types of investors are constantly looking for outstanding startups to add to their pipeline. As for later-stage funds, they like companies to show on their radar well in advance to know what’s coming.
With so many early-stage startups, you may wonder why VCs want to hear about even more. The answer is FOMO — fear of missing out. It’s probably not misguided: Relying solely on warm intros leaves out many great startups. In contrast, curators can highlight a more diverse range of opportunities.
PreSeed Now, for instance, chose to focus on deep tech and B2B startups with businesses that require some explaining to catch the attention of the average investor. Since many of these are university spinouts or founded by Ph.D. graduates, they tend to have more varied backgrounds than the “tech bro” cliché, Bryant said. In addition, the newsletter will feature companies from all over the U.K., including overlooked locations.
Vermú hopes to shake things up in a different way, with a more casual tone. Its name means “vermouth,” a reference to the aperitif drink and aperitifs in general — which is also why its emails get sent out at noon on Sundays.
Vermú’s relaxed approach is also meant to more closely reflect the mindset of Spanish entrepreneurs. In a country where many investors are former bankers and where angels have been known to ask for multiyear projections, Vermú hopes to focus on what really matters. Key information on the featured company, a link to its one-pager and deck, and an intro offer: That should be enough for investors to take the next step.
PreSeed Now takes a slightly different approach, with a long-form format leaning more heavily on the storytelling side, but without cheerleading or vanity metrics. And with its paid subscription model, its readers are also its customers, giving Bryant an extra incentive to take feedback into account.
Helping startups
While the target audience of deal-flow newsletters is the investment community, they also have a lot to offer the startups they feature. As a result, Rodríguez and his co-founder, Víctor Ramírez, have more and more pre-deal flow to sift through to determine their weekly pick.
Like all powerful tools, deal-flow newsletters still need to be approached with caution. Rodríguez notes that sharing details such as the valuation one is looking for can be a double-edged sword for founders. If they fail to raise under these terms and need to lower their ask a few months later, the investment community will likely take note.
If startups still take the risk, it’s because newsletters make sure to mitigate it in the first place. “You’ve just got to keep in mind that these are very early-stage companies and make sure that you’re handling [things] responsibly,” Bryant said.
But the lure for startups is also because success stories abound. In a 2018 post about a similar attempt at sharing deal flow via email, Eamonn Carey, a former managing director at Techstars London who became a VC, shared key metrics: After letting his community know about 44 companies, six collectively raised more than $1 million.
It took 474 introductions to get there, however, and Carey describes the process as labor-intensive. But even if there’s a lot of work involved behind the scene, it is worth it for newsletter creators, too. On one hand, the model is sustainable in itself — Vermú, for instance, has prospective sponsors on a waiting list. On the other hand, it opens all sorts of doors for them.
In a way, what these newsletters do is very similar to the job of a solo VC or a syndicate — minus the capital. It doesn’t take much imagination to see why getting checks might be the next step. Janine Sickmeyer, for instance, used to share deal flow in her newsletter before co-founding her own fund, Columbus, Ohio-based Overlooked Ventures.
Rodríguez is an entrepreneur, but Vermú also helped his plans. Before launching Vermú, he and Ramírez already had a startup, Buscoresi, which helps students find accommodation in student residences. When the time came to raise funds, their round was oversubscribed — they gathered €340,000 instead of the €200,000 they were initially looking for.
Perhaps more importantly in a country where fundraising can drag on, Buscoresi’s funding round was closed in two weeks. “The reality is that our eight months of work in Vermú helped a lot,” Rodríguez said. And with deal-flow newsletters creating opportunities all around them, it is hard to see why they wouldn’t flourish.