Deal Flow in Venture Capital: The Funnel, Stage by Stage

Deal flow in venture capital is the stream of investment opportunities that reaches an investor, and the funnel those opportunities pass through on the way to a check. In one widely cited measurement of that funnel, a survey of 885 venture capitalists at 681 firms, about 25 of every 100 opportunities a firm considers lead to a meeting with management, about 4 reach due diligence, and roughly 1 to 2 receive a term sheet.

The survey, by Paul Gompers, Will Gornall, Steven Kaplan and Ilya Strebulaev, was published in the Journal of Financial Economics in 2020, and it puts the partners-meeting stage in between at about 8 of every 100.

Definition: Deal flow is the volume and quality of investment opportunities an investor or fund receives and evaluates, usually measured as the number of companies seen per period and the conversion rate between each stage of the investment process.

Everyone brags about how many decks they see. The funnel tells you whether any of them mattered.

Illustrative worked example: A seed fund plans 8 new investments a year. The same survey reports that for each deal a firm eventually closes it considers roughly 100 opportunities, so the fund needs about 800 opportunities a year, or roughly 15 a week. Running that through the survey's stage rates (about 25 meetings, 8 partner reviews and 4 diligences per 100 opportunities) gives about 200 first meetings (4 a week), 64 partner reviews and 32 diligences. The survey also reports about 1.7 term sheets negotiated for every deal a firm closes, so 8 investments implies roughly 14 term sheets (1.7 percent of the 800, inside the survey's 1 to 2 percent band) and a win rate near 60 percent on the deals the fund competes for. In our view, that's a number many funds underestimate.

The deal flow funnel in venture capital, stage by stage

The funnel is the most useful way we know to think about deal flow, because each stage has its own cost and its own failure mode. The stage rates below come from the Gompers, Gornall, Kaplan and Strebulaev survey, which asked VCs directly what happens to the opportunities they consider.

Stage	Out of 100 opportunities	Conversion from prior stage
Opportunities considered	100	n/a
Meeting with management	about 25	about 1 in 4
Reviewed at a partners meeting	about 8	about 1 in 3
Due diligence	about 4	about 1 in 2
Term sheet offered	about 1 to 2	about 1 in 3

Read the table from the bottom up and the point jumps out. The biggest cut happens first. In the survey, three quarters of everything an investor looks at never gets a real meeting. That first screen is where deal flow quality pays off or doesn't, and it's arguably the only stage cheap enough to run at volume.

The paper also notes that a term sheet isn't a deal. Other firms can offer competing term sheets at the same time, so a share of offers never close. The survey puts that gap at about 1.7 term sheets negotiated for every deal a firm closes, a close rate near 60 percent. That gap measures access, not screening.

One caution when you reuse the table: the stage rates are rounded, so multiplying them out understates the term sheet count. Use the survey's own 1.7 figure when sizing a pipeline against a target number of closings.

How many companies a fund sees in a year

Two numbers from the same study frame the annual workload. The NBER Digest summary reports that the median firm considered about 100 deals for every deal it closed, with wide sector variation: investors focused on information technology reviewed around 151 opportunities per investment, while healthcare investors reviewed around 78. The Harvard Law School Forum summary of the same research reports that the average firm in the sample screens about 200 companies and makes about 4 investments in a given year.

Those two figures are measured differently (one is per closed deal, the other an annual screening count). So we'd treat the realistic range as roughly 50 to 150 opportunities per investment, depending on sector and on how loosely a firm defines "considered". The shape is clear enough: the ratio is measured in dozens to hundreds, not single digits.

The real cost of the funnel is time. The same survey reports an average of about 118 hours of due diligence over 83 days per closed deal, including roughly 10 reference calls. A fund closing 8 deals a year is therefore spending close to 950 hours on diligence alone, about 24 person-weeks, before anyone sits on a board.

Where deal flow comes from

The survey also measured channel mix. Of the deals VCs reported generating, more than 30 percent came through their professional networks, almost 30 percent were proactively self-generated by the firm, about 20 percent were referred by other investors, about 8 percent were referred by portfolio companies, and only about 10 percent arrived inbound from company management.

Two things follow. Roughly 60 percent of deals arrive through some kind of relationship, which helps explain why investors with no network struggle at the top of the funnel. And proactive self-generation is nearly as large a channel as the personal network, so a disciplined outbound process can partly stand in for years of accumulated contacts.

We think of that as the difference between hunting and gathering, and we've written about why we'd rather hunt. The mechanics of both are covered in the guides to deal sourcing for individual investors and venture capital deal sourcing for firms.

Don't write off cold inbound, though. An analysis published by Odin in May 2026, drawing on a VentuRank study by Anthony Richardson, found cold approaches made up about 64 percent of the opportunities firms saw but only about 6 percent of the investments they made. The cold-sourced companies that succeeded delivered roughly 16 percent higher average ROI on about 18 percent less capital. That's one study of one dataset, not a law. It's still a good reason to screen cold inbound quickly rather than not at all.

How to measure deal flow conversion rates

A funnel is far easier to manage when every stage is counted. Metrics worth tracking, in order:

Top of funnel: companies logged per month, tagged by source channel.
Screen rate: share that pass a 10-minute fit check on stage, sector, geography and check size. Benchmark against the survey's 25 percent meeting rate.
Meeting rate: share that get a first call.
Partner review rate: share that reach a full team discussion. The survey benchmark is about 8 percent of everything considered.
Diligence rate: share that enter formal diligence with a memo. Benchmark: about 4 percent.
Term sheet rate: share that receive an offer. Benchmark: about 1 to 2 percent.
Win rate: share of term sheets that close. This mostly measures access, not judgment.
Downstream quality by channel: how many companies from each channel went on to raise a strong next round, whether or not you invested.

That last one is the metric many funds skip, and in our view it's one of the most useful. If co-investor referrals produce companies that raise a Series A at three times the rate of your inbound, you know where next quarter's time should go.

Carta's guide for private fund deal teams makes the same point operationally: decide how many companies you need to connect with each month to keep the pipeline steady, then track it in a CRM rather than in memory.

What good deal flow in venture capital looks like

We'd describe good deal flow by four properties. Volume isn't one of them.

It matches the thesis. A seed fund focused on vertical software probably shouldn't be spending diligence hours on Series B biotech. A clear, published investment thesis filters the top of the funnel for you.
It arrives early. Seeing a company two weeks before it starts raising is usually worth more than seeing it two weeks after a term sheet is signed.
It converts. A channel that delivers 200 companies and zero partner reviews is a cost center, not a pipeline.
It compounds. Every founder you help, whether or not you invest, can become a referral source. The 8 percent of deals from portfolio referrals in the survey tends to grow with each fund.

Bad deal flow is the mirror image: lots of off-thesis companies, arriving late, from sources that produce nothing that later raises well.

"In a power-law business, can you afford to miss anything?"

This is the strongest case for maximum volume. Returns in venture are concentrated in a handful of outliers, and the one you didn't see can't be in your fund. By that logic, every extra deck is a lottery ticket.

But Seeing a company and giving it a real look aren't the same thing. With about 118 hours of diligence per closed deal, time is the binding constraint, not decks. A fund that floods its top of funnel with off-thesis companies spends its screening hours on noise and gets to the real outliers later, or tired. We'd take a wide net with a fast, honest filter over a wide net with no filter at all.

Common deal flow mistakes

Confusing volume with quality. A hundred inbound decks a week that don't match your thesis isn't much of a pipeline.
Not measuring the middle of the funnel. Many investors count decks received and deals closed and nothing in between, which makes it hard to know which stage is broken.
Ignoring cold inbound. One analysis suggests it is systematically under-weighted. A fast, polite screen costs little.
Not tracking the ones you passed on. Companies you declined that later raised well are one of the better available measures of your screening errors.
Sourcing only from other investors. Deals that reach you through a VC referral were often passed on first.
Letting the CRM decay. Funnel data is only useful if it is complete.

Learning the funnel from inside a fund

Conversion rates are easy to read and hard to feel. A 25 percent meeting rate only means something once you have screened the other 75 percent yourself. That vantage point is what 1752vc's Venture Fellow program is arranged to give: eight weeks of live virtual sessions spent on a working pipeline, sourcing companies and running diligence on live ones rather than reading about the funnel. About half of 1752vc's own deal flow is sourced by Fellows, who earn payouts on what they bring in, which makes the program its own example of a channel that compounds, and applications are reviewed on a rolling basis.

For what happens to a company once it clears the diligence stage, see the investor guide to venture capital due diligence and the guide to how venture capitalists make investment decisions.

The bottom line

Count every stage, tag every channel, and judge channels by what their companies do later, not by how many decks they send.

Volume makes a funnel look busy.

Conversion shows whether it works.

Key takeaways

The Gompers, Gornall, Kaplan and Strebulaev survey of 885 VCs at 681 firms found that out of 100 opportunities considered, about 25 reach a management meeting, 8 a partners meeting, 4 due diligence, and 1 to 2 a term sheet.
Firms consider roughly 50 to 150 opportunities per investment depending on sector, with IT investors near 151 and healthcare investors near 78 per deal.
Closing a deal costs about 118 hours of diligence over 83 days and roughly 10 reference calls, so the funnel tends to be limited by time rather than decks.
More than 30 percent of deals come from professional networks and almost 30 percent are self-generated, while only about 10 percent are unsolicited inbound.
It helps to measure conversion at every stage and by channel, and to track which channels produce companies that later raise well even when you passed.

Frequently asked questions

What is deal flow in venture capital?

Deal flow is the rate at which investment opportunities reach an investor or fund, and the funnel those opportunities move through. It includes inbound pitches, referrals and companies the fund finds proactively, and it is measured as the number of companies seen per period plus the conversion rate at each stage.

How many deals does a VC look at before investing?

The Gompers, Gornall, Kaplan and Strebulaev survey found the median firm considered about 100 opportunities for every deal it closed, with information technology investors nearer 151 and healthcare investors nearer 78. The same research reports the average firm screening about 200 companies and making about 4 investments in a year.

What percentage of startups get a term sheet from a VC?

About 1 to 2 percent of the opportunities a firm considers end in a term sheet, according to the same survey. Roughly 25 percent get a management meeting, 8 percent a partners meeting and 4 percent due diligence. Not every term sheet closes, because competing firms often bid at the same time.

Where does VC deal flow come from?

According to the survey, more than 30 percent of deals come from investors' professional networks, almost 30 percent are proactively self-generated by the firm, about 20 percent are referred by other investors, about 8 percent by portfolio companies, and about 10 percent arrive inbound from founders with no connection.

What is a good deal flow conversion rate?

The survey benchmarks are a reasonable starting point: about 25 percent of screened companies to a first meeting, 4 percent to diligence, and 1 to 2 percent to a term sheet. Far higher rates may mean your top-of-funnel filter is too tight; far lower rates may mean it is too loose.

Sources

Disclaimer: This guide is for general education only and is not legal, tax or investment advice. Laws, market data and program terms change, so it may not reflect the latest developments or fit your situation. Treat it as a starting point, not a source of truth, and talk to a qualified lawyer, accountant or financial adviser before you make decisions.