Working Paper: NBER ID: w22587
Authors: Paul Gompers; William Gornall; Steven N. Kaplan; Ilya A. Strebulaev
Abstract: We 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. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).
Keywords: Venture Capital; Decision Making; Management Teams; Investment Success
JEL Codes: G24; G3; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Quality of the management team (L15) | Likelihood of investment success (G11) |
| Effective deal selection (L14) | Value creation (D46) |
| Post-investment actions (G11) | Performance of portfolio companies (L25) |