How Do Venture Capitalists Make Decisions?

In this paper from the National Bureau of Economic Research, the authors survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment selection; valuation; deal structure; post-investment value-added; exits; internal firm organization; and relationships with limited partners.

In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three.

The authors also explore (and find) differences in practices across industry, stage, geography and past success. They compare the results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).

A VC Explains how VCs work

VCs have an outsized impact on startups, entrepreneurs, and the tech they invest in. But beyond the tweetstorms & headlines, the specifics of their business isn’t widely understood. Where does their money come from? How are their firms & funds structured? How does the pressure of returns impact their investment decisions?

In this video, Kate Mitchell, a partner at Scale and past chairman of the National Venture Capital Association, discusses what you should know about VCs, how you should think about fundraising, and how VCs can be surprisingly close to the companies they invest in.

Venture Capital Disrupts Itself: Breaking the Concentration Curse

Conventional investor wisdom holds that a concentrated number of certain venture firms invest in a concentrated number of companies that then account for a majority of venture capital value creation in any given year. Therefore, LPs seeking compelling venture capital returns should only commit to a handful of franchise managers. And those are precisely the managers that do not offer access. Thus, LPs are “cursed” and will never experience the differentiated return pattern offered by venture capital exposure.

As the venture capital industry and technology markets have evolved and matured, however, more managers are creating significant investment value for LPs, with value increasingly created through companies located outside
the United States and across a range of subsectors.

Gender and Venture Capital Decision-Making: The Effects of Technical Background and Social Capital on Entrepreneurial Evaluations

In the high-tech industry, women without technical expertise are less likely to be awarded venture capital than their male counterparts who lack this same technical expertise. This gender gap does not exist when comparing men and women who both possess technical skill.

This study from the Harvard Kennedy School explores the interaction of having a technical background with gender biases in performance evaluations of male and female entrepreneurs and their proposed ventures through an experimental design.

The Economic Impact of Venture Capital: Evidence from Public Companies

This working paper from the Stanford Business School explores the economic impact of the venture capital industry.

Over the past 30 years, venture capital has become a dominant force in the financing of innovative American companies. From Google to Intel to FedEx, companies supported by venture capital have profoundly changed the U.S. economy.

Despite the young age of the venture capital industry, public companies with venture capital backing employ four million people and account for one-fifth of the market capitalization and 44% of the research and development spending of U.S. public companies. From research and development to employment to simple revenue, the companies funded by venture capital are a major part of the U.S. economy.

Startup Communities: Building an Entrepreneurial Ecosystem in Your City

Startup Communities documents the buzz, strategy, long-term perspective, and dynamics of building communities of entrepreneurs who can feed off of each other’s talent, creativity, and support.

Based on more than twenty years of Boulder-based entrepreneur turned-venture capitalist Brad Feld’s experience in the field, as well as contributions from other innovative startup communities, this reliable resource skillfully explores what it takes to create an entrepreneurial community in any city, at any time.

Along the way, it offers valuable insights into increasing the breadth and depth of the entrepreneurial ecosystem by multiplying connections among entrepreneurs and mentors, improving access to entrepreneurial education, and much more.

The First Venture Capitalist: Georges Doriot on Leadership, Capital, and Business Organization

This remarkable book chronicles the ideas of a great teacher, George Doriot, whose decades long career at the Harvard Business School inspired a generation of venture capitalists and Wall Street titans of a bygone era.

George Doriot was a remarkable individual who achieved success as a teacher, a businessman, and a general in the US Army. Some of his students at the Harvard Business School kept their notes from his course in their desk drawer throughout their business careers. Even if they did not go that far, they never forgot the man or his teachings; nor did the employees of the many companies which he launched as the president of American Research & Development Corporation.

This is the first book about George Doriot, and it is a perfect first book: it is in the form of a source book, drawing from the many facets of Doriot’s career as seen by many different people, and sometimes in Doriot’s own words. All the texts are interesting and highly readable.

NVCA Oral History Collection: Henry F. McCance

An oral history featuring Henry McCance, a veteran of the venture capital industry, who joined Greylock in 1969, where he’s presently Chairman Emeritus.

NVCA Oral History Collection: David Morgenthaler

An oral history featuring David Turner Morgenthaler, an American businessman who founded the venture capital firm Morgenthaler Ventures.

NVCA Oral History Collection: Alan Patricof

An oral history featuring Alan Patricof, a venture capital pioneer, who founded Greycroft, LLC in 2006.

10,000+

high-growth startups—across all 50 states and DC—raised venture funding in 2019 to build and grow their businesses.

42%

of all U.S. IPOs from 1974 to 2015 were venture-backed companies, representing 63% of the market capitalization and 85% of R&D.

2.9 million

is the average net jobs created annually between 1980 and 2010 by high-growth startups, which account for ~50% of gross jobs created in the U.S.

1,300+

U.S. venture firms are active today, managing an aggregate of $444 billion in assets.