Deal Flow (Finance) - Explained
What is a Deal Flow?
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Table of ContentsWhat is Deal Flow?How does Deal Flow Work? Academic Research on Deal Flow
What is Deal Flow?
Deal flow is a qualitative measure of the rate of receiving business proposals and investments pitches by the financiers. The term is commonly used by the venture capitalist, angel investors and equity investors and not by the banks.
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How does Deal Flow Work?
A deal flow almost always gets affected by the market condition. A healthy economic condition generates a good deal flow for all the players in the market while in a poor market condition only the top players receive some amount of deal flow. The proposals received may be of different natures including venture funding, syndication, initial public offerings, mergers and acquisitions, private placement etc. Big investment banks deal with all types of proposals while venture capitalists and angel investors receive proposals generated in their own fields of expertise. Large and well-established venture capital firms receive hundreds of proposals each month and their selection rate is typically 0.25% to 0.5%. Active angel investment groups receive around dozens a month and select 0.5% to 1% among them. A good deal flow allows the financier to choose from a pool and select the best-suited proposal for them. The companies and entrepreneurs with a proven track record are more likely to secure an investment than the newbies. Although new players often get investment from the established financiers with a strong plan, outstanding skill, and innovative ideas.
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