How Do Venture Capitalists Make Decisions? • Hacker News Board

Re: How Do Venture Capitalists Make Decisions?

#11

Post by abuteau » Sat, Jul 15, 2017, 1:42 AM UTC

avs733 wrote: post #10

zzalpha wrote: post #6

So 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 high…

Agreed, I look at about 10 business paper a week and quality of statistical analysis is frequently missing. What I liked about this one is that they are pretty transparent on the methodology so you can see the surveyed VCs biases. They also cross check the sources with other data..

Re: How Do Venture Capitalists Make Decisions?

#12

Post by [deleted] » Sat, Jul 15, 2017, 1:42 AM UTC

avs733 wrote: post #10

zzalpha wrote: post #6

So 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 high…

[deleted]

Re: How Do Venture Capitalists Make Decisions?

#13

Post by princetontiger » Sat, Jul 15, 2017, 2:00 AM UTC

Yikes. Look institutionalized. The big money is made during the troughs when hand shacks work: 70s, early 90s, early 00s.

At the end of the day, most VC valuations are pulled out of a hat. There's a reason why $1B has become a sexy handle: people ascribed some type of value to this valuation.

Re: How Do Venture Capitalists Make Decisions?

#14

Post by danieltillett » Sat, Jul 15, 2017, 2:17 AM UTC

forgottenacc57 wrote: post #4

Is 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."

Most of the time is is just the last factor at work - everyone wants to date the hot guy even if he is only “hot” because everyone wants to date him.

Re: How Do Venture Capitalists Make Decisions?

#15

Post by WalterBright » Sat, Jul 15, 2017, 2:30 AM UTC

projectramo wrote: post #2

I 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…

> Will you do it now that Steve Jobs is back from the dead and has agreed to be the CEO?

No. I've watched too many movies where this ended badly.

Re: How Do Venture Capitalists Make Decisions?

#16

Post by rdlecler1 » Sat, Jul 15, 2017, 2:54 AM UTC

I was cofused. In the one chart, 0% of VCs reported that their own controbution contributed to success, then father down 27% of VCs reported that value add was an important factor in value creation. Anyone have additional insight?

Re: How Do Venture Capitalists Make Decisions?

#17

Post by logicallee » Sat, Jul 15, 2017, 2:55 AM UTC

This write-up is wrong and incorrect.

At the seed stage, VC's actually do not make decisions this way.

I am going to give you a simple example: if a VC were presented with an opportunity and they knew for a fact that this was proprietary dealflow and if they did not invest, the company certainly would die, i.e. had precisely zero viability but for their (and only their) investment, are there conditions under which they would invest?

The actual demonstrable answer at the seed stage is "no."

This proves that the write-up is incorrect. Not how VC's make decisions.

Re: How Do Venture Capitalists Make Decisions?

#18

Post by graycat » Sat, Jul 15, 2017, 3:06 AM UTC

abuteau wrote: post #3

projectramo wrote: post #2

I 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% fo…

In the report, I didn't see much mention of traction, revenue, social proof, etc.

For technology, sure, bio-medical VCs can evaluate that, but I doubt that information technology VCs can or will.

For deal flow, a common remark of VCs is that an entrepreneur who contacts a VC direction is just "coming over the ransom" which means that they are to be ignored. From that contempt, tough to believe that VCs care much about deal flow.

A common remark is that VCs lose money on ~90 percent of their deals but that last 10 percent, or even the one best deal, makes up for all the losses and makes money besides. Okay, then, necessarily what the VCs are interested in are exceptional deals. That is, they are looking for another Microsoft, Apple, Cisco, Google, Facebook. Okay, then in their deal sourcing they have a fundamental problem: They are getting too much of their deal flow from their colleagues, and that's not promising for finding the needed exceptional deals.

Re: How Do Venture Capitalists Make Decisions?

#19

Post by ryandamm » Sat, Jul 15, 2017, 3:32 AM UTC

logicallee wrote: post #17

This write-up is wrong and incorrect. At the seed stage, VC's actually do not make decisions this way. I am going to give you a simple example: if a VC were presented with an opportunity and they knew for a fact that this was proprietary dealflow and if they did not invest, the company certainly would die, i.e. had precisely zero viability but for their (and only their) investment, are there conditions under which th…

This sounds a little too cynical, and possibly autobiographical.

I have counterexamples. So, who's right?

Re: How Do Venture Capitalists Make Decisions?

#20

Post by logicallee » Sat, Jul 15, 2017, 4:16 AM UTC

ryandamm wrote: post #19

logicallee wrote: post #17

This write-up is wrong and incorrect. At the seed stage, VC's actually do not make decisions this way. I am going to give you a simple example: if a VC were presented with an opportunity and they knew for a fact that this was proprietary dealflow and if they did not invest, the company certainly would die, i.e. had precisely zero viability but for their (and only their) investment, are there conditions under which th…

This sounds a little too cynical, and possibly autobiographical. I have counterexamples. So, who's right?

if you have counterexamples then you are right and I am wrong.

I shot you an email asking for details of your counterexamples and will write in a reply if in my opinion they falsify my claim. (Or you can include them here if they're public.)

I'm open to the idea that I was wrong.