Deal flow refers to the rate at which financiers such as venture capital firms, private equity firms and investment bankers receive business proposals and investment pitches. Because private equity investments do not take place on a public exchange, deal flow is a key element in the private equity process. A private equity firm can only make investments and deals if it has a constant stream of quality deals.
Deal flow is very much a function of supply and demand. For example, with a continuous influx of technology entrepreneurs, a venture capital firm might find entrepreneurs pitching to them regularly. Deal flow is also affected by economic conditions. In times of economic and business stagnation, entrepreneurship may level off or decline. Similarly, M&A deals may not take place due to the lack of business expansions plans. In larger deals involving, for example, the privatisation of a public company, PE firms and investment banks might engage in bidding wars to acquire the company, usually due to the clear expectation of profit from restructuring the company upon acquisition.
Deal flow can come from a number of sources including conventions, roadshows and entrepreneurial fairs. However, most deals originate from referrals by other investment firms, introducers, and especially from companies and entrepreneurs where a previous investment had been successful.
In 2015, private equity and venture capital investments in Asia have totalled more than US$55 billion, a more than 60% increase over the previous year.