Deal flow

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 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 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, raising their profiles by giving speeches, writing blogs, 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.

References

References

1. Kronenberger, Craig. (2021-04-15). "The Top 8 Qualities of a Startup Founder".