What is deal flow in private equity?

June 22, 2023

Jonathan Charpentier

If you're in the world of private equity, you've probably heard the term "deal flow" thrown around quite a bit. But what exactly is deal flow? In simple terms, deal flow is the rate at which investment opportunities come to private equity firms. But its importance goes much deeper than that. In this article, we'll explore the definition and importance of deal flow in private equity, as well as the stages of deal flow and strategies for improving it.

Understanding Deal Flow

Definition of Deal Flow

Deal flow refers to the amount and quality of investment opportunities presented to private equity firms. These opportunities may come from various sources, including investment bankers, industry contacts, and proprietary research. Essentially, deal flow is the pipeline of potential investments that a firm can evaluate and potentially pursue.

Private equity firms often have a specific investment strategy, such as investing in a particular industry or focusing on companies of a certain size. As such, deal flow is important because it allows firms to identify and evaluate potential investments that fit within their investment strategy.

Importance of Deal Flow in Private Equity

Deal flow is crucial to the success of private equity firms because it determines the quality and quantity of investment opportunities available to them. Without a steady and high-quality flow of opportunities, firms may struggle to find viable investments that can generate returns for their investors.

Additionally, deal flow is a key factor in determining a firm's reputation and ability to attract investors. If a firm is known for consistently identifying and executing successful investments, they are more likely to attract new investors and retain existing ones. This is because investors want to invest with firms that have a proven track record of success.

Furthermore, deal flow can also provide private equity firms with a competitive advantage over other firms. If a firm has access to a higher quality of deal flow than its competitors, it may be able to identify and execute investments that its competitors cannot.

Factors Influencing Deal Flow

There are various factors that can influence the rate and quality of deal flow for private equity firms. One of the most influential factors is the network and relationships a firm has with industry contacts and intermediaries. Firms with strong relationships are more likely to receive high-quality investment opportunities.

Another factor is the firm's reputation and track record. Firms that have successfully executed investments in the past are more likely to receive referrals and opportunities from intermediaries and potential co-investors. This is because intermediaries and potential co-investors want to work with firms that have a track record of success.

Market conditions and industry trends can also impact deal flow by influencing the number and quality of investment opportunities available. For example, during an economic downturn, there may be fewer investment opportunities available because companies are struggling and may not be seeking investment. Conversely, during an economic boom, there may be more investment opportunities available because companies are growing and seeking investment to fuel their growth.

In addition, the size and focus of a private equity firm can also impact deal flow. For example, larger firms may have access to a wider range of investment opportunities because they have more resources and a larger network. Firms that focus on a specific industry may also have access to a higher quality of deal flow because they have a deeper understanding of that industry and its potential investment opportunities.

Stages of Deal Flow in Private Equity

Deal Sourcing

The first stage of deal flow is deal sourcing, which involves identifying potential investment opportunities. Private equity firms use a variety of methods for sourcing deals, including industry contacts, intermediaries such as investment bankers and brokers, and proprietary research.

During the sourcing stage, firms must evaluate potential investments against their investment criteria and determine which opportunities are worth further evaluation.

Deal Screening

After potential investments have been identified, the next stage is deal screening. This involves a more detailed analysis of the investment opportunity, including financial and operational due diligence, market analysis, and evaluation of management teams.

If the investment opportunity passes the screening stage, it will move to the next stage of deal flow.

Due Diligence

During due diligence, private equity firms conduct a thorough analysis of the investment opportunity to ensure that it meets their investment criteria and has the potential to generate returns for their investors. This may involve additional financial and operational analysis, legal due diligence, and evaluation of potential risks and opportunities.

If the investment opportunity passes due diligence, it will move to the next stage of deal flow.

Deal Execution

During the execution stage, private equity firms negotiate and structure the investment transaction. This may involve drafting and negotiating legal agreements, determining the appropriate financing structure, and finalizing the terms of the investment.

If the investment transaction is successfully executed, it will move to the final stage of deal flow.

Post-Investment Management

The final stage of deal flow involves post-investment management, where private equity firms work to create value and generate returns for their investors. This may involve providing strategic and operational support to the portfolio company, implementing changes to improve growth and profitability, and identifying potential exit opportunities.

Strategies for Improving Deal Flow

Expanding Networks and Relationships

One of the most effective ways to improve deal flow is by expanding networks and relationships within the industry. This may involve attending industry events and conferences, building relationships with intermediaries and potential co-investors, and leveraging existing relationships to identify potential investment opportunities.

Leveraging Technology and Data

Technology and data can also play a significant role in improving deal flow. Private equity firms can use technology tools to help automate some aspects of the deal sourcing and screening process, as well as leverage data analytics to identify new investment opportunities and trends.

Attending Industry Events and Conferences

Attending industry events and conferences can be an effective way to connect with potential investment opportunities and build relationships within the industry. Firms can use these events to identify new investment trends, learn about potential investment opportunities, and network with other industry professionals.

Collaborating with Other Investment Firms

Collaboration with other investment firms can also be an effective way to identify new investment opportunities. By working together, firms can leverage each other's networks and capabilities to identify and execute successful investments.


Deal flow is a critical component of private equity investing, as it determines the quality and quantity of investment opportunities available to firms. By understanding the stages of deal flow and strategies for improving it, private equity firms can enhance their investment pipelines, generate returns for their investors, and build their reputation within the industry.

Better finance for SaaS.

Request demo

Bring your SaaS metrics out from the dark.

Request demo