Deal flow is a term used by
finance
Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
professionals such as
venture capitalists,
angel investor
An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an individual who provides capital to a business or businesses, including startups, usually in exchange for convertible de ...
s,
private equity
Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...
investors and
investment banker
Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by unde ...
s to refer to the rate at which they receive business proposals/investment offers. The term is also used not as a measure of rate, but simply to refer to the stream of offers or opportunities as a collective whole. An organization's deal flow is considered "good" if it results in enough revenue- or equity-generating opportunities to keep the organization functioning at peak capacity. For private consultants to high and ultra high net worth individuals, deal flow is called deal generation, which is the process of making deals with a business as the result of lead generation.
In venture capital
The most famous and successful venture capital firms regularly receive hundreds of business plans each month. From among these, it is not unusual for a VC firm to actually fund only 0.25%–0.5%. Firms will typically institute a unique approach to determining the startups they choose to fund.
Active angel investment groups will typically receive dozens of plans monthly, but because of the much smaller number of plans compared to VCs they tend to fund a somewhat higher percentage (0.5%–1.0%). Once a company passes the group's screening process and is invited to present to the group's full membership, its chances of getting funded rise to about 18%, according to the University of New Hampshire's
Center for Venture Research.
Sources of deal flow
A fund's or group's deal flow is generated from many sources. The most valuable referrals often come from entrepreneurs or companies in which the fund has previously invested; from other funds looking to
syndicate
A syndicate is a self-organizing group of individuals, companies, corporations or entities formed to transact some specific business, to pursue or promote a shared interest.
Etymology
The word ''syndicate'' comes from the French word ''syndic ...
a deal; and from professionals (such as attorneys and accountants) who are familiar with the fund's investment criteria. Other sources of deal flow are
investment bankers
Investment banking is an advisory-based financial service for institutional investors, corporations, governments, and similar clients. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by unde ...
and "finders", who expect to receive a fee (from either the company or the investor) for making the introduction.
Many funds and groups (but not all) will also accept business plans "over the transom", that is, as an unreferred submission from a company with no previous relationship with the funding organization. In practice such unreferred plans are usually much less likely to receive funding.
To create and maintain sufficient deal flow, venture capitalists and angels spend much of their time doing
business development
Business development entails tasks and processes to develop and implement growth opportunities within and between business organizations. It is a subset of the fields of business, commerce and organizational theory. Business development is the cre ...
, raising their profiles by giving speeches, writing
blogs
A blog (a Clipping (morphology), truncation of "weblog") is an informational website consisting of discrete, often informal diary-style text entries also known as posts. Posts are typically displayed in Reverse chronology, reverse chronologic ...
, and networking with others who also work with early-stage companies. VCs and angels regularly attend conferences and "venture fairs" where multiple companies
pitch their businesses to investors.
See also
*
Venture capital
Venture capital (VC) is a form of private equity financing provided by firms or funds to start-up company, startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in ...
*
History of private equity and venture capital
The history of private equity, venture capital, and the development of these asset classes has occurred through a series of boom-and-bust cycles since the middle of the 20th century. Within the broader private equity industry, two distinct sub-in ...
References
{{DEFAULTSORT:Deal Flow
Venture capital