How Do Venture Capitalists Make Decisions?
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Re: How Do Venture Capitalists Make Decisions?
#2I would be curious to see more detail about these factors:
"...the attractiveness of the market, strategy, technology, product/service, customer adoption, competition, deal terms and the quality and experience of the management team."
I feel that there is another layer of analysis that is being missed which is the interaction.
Q: Would you invest in AirBnb at 31B?
Hypothetical response: No, there is so much competition from the hotels, and competing sites. I think they have liability risk.
Q: How about at $1B value?
Hypothetical: Are you kidding me? Of course!
The valuation interacts with the other criteria.
Q: Would you invest in my personal device company at $100 million?
Hypothetical answer: No way. I think the market is saturated.
Q: Will you do it now that Steve Jobs is back from the dead and has agreed to be the CEO?
Hypothetical answer: duh! Of course!
Again, the "team" has now changed things around.
I can't think of any situation where these factors don't interact with each other.
Re: How Do Venture Capitalists Make Decisions?
#3I would be curious to see more detail about these factors: "...the attractiveness of the market, strategy, technology, product/service, customer adoption, competition, deal terms and the quality and experience of the management team." I feel that there is another layer of analysis that is being missed which is the interaction. Q: Would you invest in AirBnb at 31B? Hypothetical response: No, there is so much competiti…
Hey op here, good feedback,
Yes factors do interact. However it was not really part of the survey.
One thing they had was the difference between most important factors and important factors
In the summary, I reported only the most important factors. If you look at the important factors here are the results, which show a bit the factors interacting:
Team 96% for early, 93% for late
Business model 84% for early, 86% for late
Product 81% for early, 60% for late
Market 74% for early, 69% for late
Industry 30% for early, 37% for late
Valuation 47% for early, 74% for late
Ability to add value 44% for early, 54% for late
Fit with the fund 48% for early, 54% for late
There are also other factors that will impact the companies valuation such as anticipated exit, comparable companies, competitive pressure and desired ownership.
For more a deeper analysis I think it would be interesting to see the survey applied to a scenario planning model like the team at the OS Fund did [1].
[1] http://osfund.co/the-osf-playbook/ [EDIT]: Formatting
Re: How Do Venture Capitalists Make Decisions?
#4Is it a perfect team, with a complete working product, massive user base and sales and no risk and lots of other investors wanting in? We're in!
Else, "Your company is not a fit for us right now but keep us in the loop."
Re: How Do Venture Capitalists Make Decisions?
#5Is it a perfect team, with a complete working product, massive user base and sales and no risk and lots of other investors wanting in? We're in! Else, "Your company is not a fit for us right now but keep us in the loop."
Mostly ;)
Marc Andreessen wrote a good article on the layers of risks that VCs are looking into [1]. Most of them want to maximize the upside while minimizing the downside..
Re: How Do Venture Capitalists Make Decisions?
#6So they report the factors they weigh, then self-report the factors they think contributed to success?
That feels like fertile ground for confirmation bias.
Re: How Do Venture Capitalists Make Decisions?
#7this was an awesome read. archived for future ref: http://archive.is/XM2BO
Re: How Do Venture Capitalists Make Decisions?
#8So they report the factors they weigh, then self-report the factors they think contributed to success? That feels like fertile ground for confirmation bias.
yes most likely confirmation bias which is in sync with their reported ability to outperform but they dont usually.. this was the shadiest part of the survey for me.. failure data looks similar to
Re: How Do Venture Capitalists Make Decisions?
#9Re: How Do Venture Capitalists Make Decisions?
#10So they report the factors they weigh, then self-report the factors they think contributed to success? That feels like fertile ground for confirmation bias.
I have a foot in the engineering research, the educational research, and the business research camps.
The level to which I trust the findings in business research is basically this order:
1) Educational Research
2) Engineering Research
3) A guy on the corner saying 'trust me'
4) Business Research
The issue is simply down to the level of trust they seem to place in their data. The data is treated as invariant and highly positivist, and their trust in experts self-reports (because they are self-reports) is staggering. You should be really cautious at an epistemic level of taking anything business researchers tell you about how people make decisions.