What Is Deal Flow

Deal flow is a term used by investment bankers and venture capitalists to describe the rate at which business proposals and investment pitches are being received.

Rather than a rigid quantitative measure, the rate of deal flow is somewhat qualitative and is meant to indicate whether business is good or bad. The state of the economy has a significant influence on the level of deal flow. Economic expansion and robust equity markets will usually generate healthy deal flow for most financiers, while a recession and sluggish equity markets may generate some deal flow for only the most established players.

Key Takeaways

  • Deal flow refers to the rate at which financiers receive pitches.
  • Deal flow tends to be a qualitative measure, rather than a quantitative one.
  • Deal flow often follows a cyclical pattern, and trends unfold throughout society and economic environments.

Understanding Deal Flow

Deal flow can be composed of many different types of proposals: venture funding, private placements, syndication, initial public offerings (IPO), mergers, and acquisitions. While large investment banks can handle most of these activities, specialist financiers such as venture capitalists and angel investors will generally focus on deal flow only in their area of expertise.

While deal flow can be generated from several sources, the proposals that are likely to garner the most attention are the ones from companies or entrepreneurs where a previous investment has been successful, or where there is a solid existing relationship. On the other hand, unsolicited proposals from untried entities are likely to be given short shrift by most established financiers.

Example of Deal Flow

Deal flow often follows a cyclical pattern, and trends unfold throughout society and economic environments. For example, in the 1980s, "high-tech" industries adopting the early stages of digitization saw healthy deal flow for inputs up and down the supply chain. By the turn of the century, information technologies were all the rage. And by 2008, the Internet of Things was taking off, and today, SaaS (Software as a Service) enjoys far more deal flow than hardware providers.

In the future, deal flow will follow where growth opportunities will come from: such as artificial intelligence, evidence-based medicine, and connected consumer devices.