Introduction to Deal Flows

Deal flows is a term that is used to describe the amount of deals that are made available to a venture capitalist. Venture capitalists provide capital to start-up businesses. Venture capitalists are individuals, partnerships or businesses that make money by investing in other companies. Typically, these individuals have a great deal of capital to invest. Venture capitalists search out companies that are looking for financing and offer them the capital that they need. In return for offering the capital, these venture capitalists will generally receive partial ownership in the company. In order for them to be successful, a steady flow of deals must be made available to them. 

Deal Flows

Successful venture capitalists have to have a large number of opportunities, on a regular basis. Not every business opportunity will be promising and a venture capitalist must filter through several deals to find the right opportunity. The deal flow is essentially the total amount of business proposals that are received by a venture capitalist over a specific amount of time.

Large Venture Capitalists

Most big venture capitalist firms receive large numbers of deals all the time. In fact, some of them receive hundreds, or thousands, of deals every month. These large companies tend to find a very small percentage of deals that they receive. For example, a venture capitalist might only fund .05 percent of the deals that they receive. These companies have been successful in the past with the companies that they have chosen and they do not necessarily need do a lot of new business in order to be profitable. They are still always on the lookout for the next big thing, but they are not desperate for new business.

Smaller Firms

Smaller venture capitalist firms may not receive as much deal flow. These companies must actively look for entrepreneurs to work with. When a new venture capitalist firm starts up, they will compete with many other venture capitalists in the market. They have to be able to separate themselves from the market and increase the amount of deal flows that they receive.

These venture capitalists might use online marketing in order to attract new customers, or traditional forms of advertising, such as billboards or newspaper ads. The goal is to let entrepreneurs know that they are in business to provide capital.

Investment Criteria

In the past, venture capitalists could receive a number of deals without doing that much work. In today's market, there are so many venture capitalists that they have to compete for business. Because of this, many of them choose to specialize in a particular field. They will look for entrepreneurs that are dealing in a particular business, and then try to find the best business opportunities out of that field to put money into.

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