How to Find Better Deal Flow
A simple strategy to find the best start ups, secure allocations and vet deals.
This is part of Alec Torelli’s NFT Collection. Purchase the NFT here.
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I attended Host in Milan recently, the biggest hospitality Expo in the world. I was invited by Cubo, a start-up I’m investing in, which can be thought of as the Nespresso for healthy juices, smoothies, soups, lattes, and more.
While I was there, Ambra and I drifted to the floor and tested the latest, most promising food products and learned about the suppliers to the hospitality industry. From pizza and gelato makers to coffee machines and impressive ovens, Host had just about everything one could imagine.
My experience there helped solidify that our process of finding hidden gem start-ups is something that many people could copy, and I want to share our process with you in hopes that it can serve you as well.
Step 1: Finding Hidden Gem Companies
Well, you may have guessed it, but one of my favorite strategies is to attend Expos and Conferences in specific niches of interest. For me, that’s health and wellness, so attending Expos like “Expo West”, “Host” and “Expo East” are obvious first steps.
The wellness niche is particularly awesome because most of the time there’s a physical product you can sample. “Experiential Marketing” is one of the best ways to convert a potential lead.
For example, if I’m considering a gelato maker, and can push the button on their machine and sample the gelato, it’s a lot easier to determine whether or not I like the product.
At a single trade show, I can walk the floor and easily scan for which products stand out. I look for products that pop. Your mind will take care of this naturally, so you don’t have to force it.
My thinking is that you can’t possibly see or vet everything, so the best filter is whether or not it captures my attention. This is especially true in the “Consumer Packaged Goods” (CPG) business. If something doesn’t stand out at a trade show, it probably won’t stand out on a Whole Foods shelf.
So, I roam around freely, stay present, and see what captures my attention. I welcome the people who stand outside their booth and pitch me. It’s a sign they know sales and potentially have a good outbound marketing strategy.
I’ll stop at 10% of the booths and look deeper. That’s when things get interesting.
Step 2: Observe
Once I find a product I like, I’ll stop at the booth. I won’t do anything in particular, other than look at the product and understand their marketing angle. I’ll put myself in the shoes of their target customer.
If I can’t immediately understand who that is, well, that’s a problem. I notice their communication. Does the product stand out? Is their marketing on point? How is it unique? Is there an easy way to copy this or do they have something special?
If I like what I see, I’m ready to initiate a conversation.
Step 3: Demo the Product
I walk up to someone at their booth and fire. “Tell me about your product” is usually a good opening line, because you get to see their elevator pitch. If they can’t explain it succinctly, that’s a red flag. If the pitch isn’t compelling, that’s another one.
During this initial icebreaker, I’ll almost always demo the product. If I’m very impressed (8.5 or more), I’ll continue. The most amazing part of this is about half the time you’re speaking directly with the CEO. It doesn’t get better than hearing it directly from the person who invented the product!
If after hearing their pitch, it’s not a fit, I politely thank them, wish them luck, and move on.
The mistake I used to make at this point was not having high enough standards and a strong enough filter. What follows next may take 5-10 minutes. Not only will it take up too much of your time, but it will burn you out.
A massive Expo such as Host has some 20 pavilions, each with hundreds of booths. Do the math: you can’t possibly speak to them all.
Just like at a networking party, you’re lucky to make 3-4 good connections, the same is true at Expos. If I leave with a few companies I want to pursue, that’s a success. It’s always about quality over quantity.
Second, it requires a lot of mental bandwidth to engage and do due diligence on products all day. I lose interest and it feels like a chore if I’m there for four days, so I try to enjoy one, maybe two days at most, and do the best I can. That means only moving forward with companies who I’m truly impressed with.
Think of opening a conversation like going on a second date, and imagine you are looking to get married with kids (that’s what investing in a company means). With that heuristic in mind, I only open a conversation if I believe at the time that this is an investable company.
If you get this filter right, you’ll have a great time. If not, you’ll kill yourself and lack efficiency and productivity.
Step 4: Dig Deeper
If I get to this stage it means I’m excited. I’ll lean in and dig deeper by asking poignant questions. Some examples may include:
How does this (specific) aspect of the product work exactly?
What is your company story? Why do you guys exist?
How long have you been in business?
Who is your target customer?
What are your margins?
Do you have revenue?
How do you plan on marketing?
How does this scale?
What is your exit strategy?
Are you raising capital? How much? At what valuation?
Naturally, these questions get more personal and each one requires more interest and understanding of the company. I won’t ask about their valuation or if they are raising if I don’t like what I see or hear prior.
In brief, I have a natural conversation and learn as much as I can about the product in 5-10 minutes. I want to be mindful of their time, as they are usually busy and have other guests to attend to.
I also want to be mindful of mine, as there are only so many products I can vet during a trade show.
Step 5: The Ask
If I make it here, I’m prepared to find a way we can further our relationship. By this point, I’ve already understood if they are raising money, how much, if they need help, and at what valuation. If their answers have me excited, I’ll tell them how I can help.
Here’s where I must have my own elevator pitch and cater it toward their specific product.
In my experience, great companies have many LPs they can raise from, so you must communicate why they should take your capital. Since I know the industry well, I usually have some ideas about how they can improve their product or marketing.
I aim to communicate that I can provide value through strategic guidance, syndicate the deal by bringing in other investors, and share it with my audience to broaden their reach and facilitate introductions. The power of staying within your niche is that you have a competitive advantage over the random investor.
I find that the best way to secure an allocation is in person, while the ideas and energy are right in front of you. Hopefully, by this point, you’ve made a good impression and they want you on their cap table.
If they are raising and you have the capital, then you’re a great match. Companies will often work with you on their minimums if they feel like you can add value beyond simply providing cash.
If you have a network, you can pool the capital with friends, family, or your fellow investors, set up an SPV, and invest all together. Companies love this because there’s only one person on their cap table, but they have the benefit of having multiple people invested in their success.
I’ll conclude by having a clear next step, which is typically that we exchange contact info and they email me specifics about their company, raise, marketing plan, etc.
I use the app Popl to have all of my information populate immediately into their phone, including email, social media, and WhatsApp. They simply scan my QR code and my details save to their phone. From there, they can share their details as well.
Having the CEO on WhatsApp is massively different and more valuable than leaving a business card and hoping for the best.
Post Trade Show
I’ve used the 5-Step process above to find, vet, and create partnerships with companies through conferences, Expos, and trade shows. I hope this helps you on your investment journey too.
One more angle you can add to this is to hunt with a partner. If you’re on opposite coasts, you can each tackle your respective trade shows, then meet on Zoom following each one to go over the details. Plus, two (smart) heads are always better than one, so you’ll have someone to bounce ideas off and screen for your blind spots.
One best practice I have whenever I find a company is I put together a short pitch, and send it to a few friends who look at a lot of companies. If I can’t interest them, chances are it won’t be a fit for my audience. I also get immediate feedback and learn about problems and challenges that other investors will have.
I go back and forth with the company and my close-knit group to iron out any kinks, make sure I didn’t miss anything, do further diligence, and, assuming everything checks out, improve my pitch for my network.
Putting It All Together
The little video you saw, in the beginning, was an example of something I shot in real-time, without any expectations about whether or not I would use it. Once I returned home and was excited about the deal, I sent it to my editor and had him cut it together.
I used the sizzle to send to some close friends in my network to see if there was interest. From there I learned a lot about their feedback, questions and skepticism, and addressed it head-on with the help of the company directly.
Just as in poker it’s always best to ask people you trust how they would have played the hand, to ensure there are no biases, I find running companies and investments by my network to be a great practice.
It’s easy to get ‘married to the hand’ or excited about the prospects of the company. Your friends, who didn’t attend the trade show and know nothing about the project, will bring a healthy dose of skepticism that can save you a fortune!
If a product passes all of these steps, it’s by no means guaranteed success - far from it - but you’ll have stacked the deck in your favor and hopefully have a better chance of finding a winner.
As always with venture, it’s important to be mindful of the risk, size your bets correctly, and know the game you’re playing.
Closing Thoughts and Next Steps
My name is Alec Torelli and I am excited by some new opportunities I have seen. I have traveled the world, seen many companies, made good investments, and made bad investments.
Those of you who follow me know I’m a professional poker player, entrepreneur, international traveler, and believer in crypto and the tokenized economy.
I am not an investment advisor and I am not giving financial advice. As such, I hereby make no express or implied warranties regarding the business discussed in this article, financial or otherwise, whatsoever.
All that said, you can probably tell I’m very excited about investing in companies like CUBO. It just so happens, that I’m helping them raise capital, and am looking to expand my investor network. I will also be consulting for them!
You can also join my syndicate to get early access to the deal and others like it.
What questions do you have for me?
If you found this valuable, please share it far and wide.
Alec