VC research study: Success and ROI of cold deal flow companies versus warm deal flow companies

A version of this article was first published on Medium.

Nearing the end of last year, we interviewed and surveyed as many US-based VCs as we possibly could about deal flow. Specifically that between cold solicitations, outreach and the differences to their counterparts: warm introductions.

One of our more recent compiled findings has finally taken shape: In the United States, and of the VCs who chose to participate in this study, 64% of a VC’s overall deal flow comes in from a cold source (i.e. companies who make contact with a Venture Capitalist after having no prior contact or relationship), 26% comes from a warm source (i.e. companies who are introduced to a Venture Capitalist by someone the Venture Capitalist knows) and the remaining 10% comes from outbound scouting and sourcing.

However, after calculating the probability of various stages, a warm introduction is certainly the stark preference by many.


Combining all pitchdecks from all sources…

  • there is about a 17% chance that any given pitchdeck will make it from round 1 to round 2 and,
  • 2% chance when a company reaches an investment committee that they will receive funding (moving from round 2 to round 3 of the process). But all pitchdeck sources are not created equal.


Evaluating only the companies who had no introduction or prior relationship with the VCs, we see our numbers change significantly. If we were to then remove both the warm and the outbound contact types, we find that

  • there is about a 1.19% chance of getting to an investment committee and,
  • once there, a .38% chance of getting funding.


Next, we calculated the probability for companies who were a warm introduction (having a pre-established relationship with the VC or having someone with a pre-established relationship make a connection. Companies with a warm introduction to a Venture Capitalist had…

  • a 26% chance of getting to an investment committee and once there,
  • 4.6% chance of getting funding.

The focus on warm leads versus cold is certainly nothing new to those who are familiar with the VC world. Having someone of credibility vouch for you certainly has some truth in every industry, and this one is of no exception. However, the wheels of curiosity begin to churn when it comes to efficacy data of these introduced companies.

Follow with me for a moment:

If we can assume that the vast majority of venture-backed companies were found through warm introductions, can we also then assume that they have a higher degree of performance and overall chance of success, or is this a myth? We wanted to know.

So, we followed up further. As a follow-up to our initial study on deal flow sources, we wanted to determine the success of each group, based on where they came from. In order to achieve this, we needed the VC participants to dig deep into their historical data. Thankfully, many of them wanted to see the results of this themselves and therefore were interested in contributing to the overall study.

The results were interesting.

We found that when it came to success, cold deal flow and warm deal flow deals performed relatively similar in terms of likelihood for success or failure, with warm deal flow companies outperforming in this statistic by a little less than 2%.

This finding was fairly spot on to our initial thesis, having both sides being evaluated by the same investment committees.

However, there was an interesting finding when it came to the size of success. The successful cold deal flow companies outperformed in terms of overall exit size, yet slightly underperformed their successful counterparts in terms of EBITDA. Specifically, the cold deal flow companies saw, on average a 16.2% higher ROI even though they saw comparable or slightly less overall YoY financial performance.

We’ll add this again in bigger letters just for clarity:

Cold deal flow companies saw, on average a 16.2% higher ROI

With findings like these creating more questions, we needed to then look into what types of companies were getting through the cold deal flow funnel. We, once again, started sifting through the data sets in order to find commonalities. As a refresher from above, this combined data set was only for the companies that…

  • began as cold
  • were evaluated by an investment committee
  • selected for funding and,
  • had a successful return to the investors

Henceforth, and for brevity, we’ll call these the Blue Group.

So, what did all of these Blue Group companies have in common? Four things: their business models, their ethnicities, the amount of money invested and the age of the founders.

Age group:The founding teams within this Blue Group were, on average, almost 7 years junior to their warm counterpart group (warm, committee’d, funded and successful exit). Perhaps inexperience and a lack of integrated connections for a warm intro garnered a higher probability of pursuing cold connecting to VCs.

Diverse teams: These founders were 4x as likely to have 2 or more individuals with minority group status (diverse teams, female, etc.). The thesis here again is that diverse teams are less likely to have connections that could lead to warm intros and also, at the risk of potentially attacking some VC firms — people have connections to people who are like them and we know that predominantly, VCs are older white males. Aside: There have been several studies on this topic specifically that we won’t cover here.

Business models: All indicators that we could find demonstrated that companies within the Blue Group had significantly more ironed out business models and proof of success prior to receiving funding.

Funding requirements: Here is where the data, admittedly, got a bit hazy due to the increasingly limited sample size. By the records that we had available to us, both publicly and privately, we found that Blue Group companies requested, required and received almost 18% less in terms of average check sizes when compared to their warm counterparts.

This, in conjunction with the other points here, perhaps explains our ROI findings from above. Adding once again the larger letters for our busy, scanning-text readers

Cold deal flow companies saw, on average a 16.2% higher ROI and required almost 18% less capital.

More recently there have been many newer firms that have begun to speak more vocally on their interest in cold, whether that be for diversity and inclusion purposes or more simply having an early accessibility advantage over the larger, more established firms with stronger networks.

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