Business, Legal & Accounting Glossary
The rate at which investment offers are presented to funding institutions.
Deal Flow refers to the never-ending stream of business proposals that come to most venture capitalists for review. It is common for a venture capital firm to receive more than 100 business proposals each month. Therefore, it is not unusual for a venture capitalist to invest in less than one percent of the deals arriving at his doorstep.
Deal flow explains why an outstanding business plan is so important. Also, it explains why venture capitalists can often insist on the structure of the deals they will accept. The best way an entrepreneur can address this inflexibility is to approach more than one venture firm at a time. Few venture capitalists will object or lose interest in a company’s proposal when an entrepreneur takes this approach. Soliciting more than one venture capitalist can create healthy competition among investors and enhance a company’s bargaining position. In the best case, several capitalists will bid against each other to fund an attractive deal. This happened frequently in Internet-related financings of the late 1990s, resulting in excellent deals for Internet entrepreneurs. This is not to say, however, that companies should shop their business plans indiscriminately to a large number of investors. To do so shows a lack of sophistication on management’s part and can discourage interest from investors.
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This glossary post was last updated: 30th December, 2021 | 0 Views.