The Deal Flow Funnel
How VCs source, evaluate, and close deals
Sourcing
Deal flow comes from four main channels: (1) Warm referrals from other VCs, founders, and advisors — this is the highest quality and highest conversion channel. (2) Inbound — cold emails, application forms, and website submissions. (3) Outbound — proactive research where VCs identify promising companies in target sectors. (4) Events and networks — conferences, demo days, accelerator showcases. The best VCs build proprietary deal flow through deep sector expertise and strong founder networks.
Screening
Of 1,000 companies seen, maybe 100 get a first meeting and 30-50 get a second meeting. Screening criteria include: market size (is this a large enough opportunity?), team (do the founders have relevant experience and drive?), traction (is there evidence of product-market fit?), and thesis fit (does this match what the fund is looking for?). Most VCs make an initial pass/fail decision within 5-10 minutes of reviewing a pitch deck.
Due Diligence
For the 10-20 companies that survive screening, VCs conduct deeper due diligence: customer calls, technical review, financial modeling, competitive analysis, and reference checks on the founding team. This process takes 2-8 weeks and involves multiple partners at the firm. The output is an investment memo that goes to the partnership for a final vote.
Investment Committee & Close
Most VC firms make investment decisions by partnership vote. A senior partner 'champions' the deal and presents the investment memo to their partners. Some firms require unanimous consent; others use majority vote. After approval, the term sheet is issued, legal docs are drafted, and funds are wired. The entire process from first meeting to wire typically takes 4-12 weeks.