
How Do Venture Capitalists Make Decisions? - Dowwie
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801385
======
marknadal
In my personal experience of fund raising (I raised from billionaires Tim
Draper and Marc Benioff of Salesforce for
[http://gun.js.org/](http://gun.js.org/) ) is that it is all about social
proof, referral, and not missing out on a deal that another reputable name is
already in on.

This surprised me, because I'm an extreme penny pincher, so it was odd to see
people move large sums of money in a "where's the money at" mentality rather
than (perhaps my poor-man's mentality?) "what is the best value I can get?"
process.

Although Tim Draper was my lead, so he got the best value in the deal. ;) And
I'm happy for it, because he's been remarkable to work with - very supporting,
encouraging, and edifying.

~~~
newy
There's an element of "not missing out", but for many investors (especially
angels, who do not invest professionally), there's also elements of: (a)
wanting to co-invest with friends and (b) trusting the judgment of people they
know well.

------
danieltillett
Do any VCs take a sampling approach to investment selection? By this I mean
randomly choosing x% of all approaches (hot and cold) and then rigorously
investigating the opportunities, or do they all rely on the old "warm"
introduction as a prescreen?

~~~
lpolovets
I can't speak for later stage investors, but a number of early-stage VCs,
including myself, are happy to chat with founders w/o warm intros.
Unfortunately, many people write terrible cold emails that don't get any
replies, and then those people assume that VCs never reply to cold emails.

That said, there are some VCs that stopped accepting cold pitches because they
initially researched and tracked leads from many channels, and eventually
found that cold pitches had near-zero ROI.

~~~
marknadal
Leo, we already raised (see my post elsewhere in this thread) so we aren't
looking for money, but it seems like we missed you guys as someone we should
have talked to, seeing you are in the database/developer tools space. Up for a
chat? mark AT gunDB.io .

~~~
pc86
Just completed your 'thoughts' tutorial, seems like a neat library!

~~~
marknadal
Thanks! Chat with us/the community anytime
([https://gitter.im/amark/gun](https://gitter.im/amark/gun)), we're more than
happy to help and get to know you!

------
chris_va
That was a nice read, though I do think they should've gone into more detail
on sourcing and decision making.

VCs (unless you are Sequoia) can get really stressed about good deal flow in
sourcing. The 100:1 pitch:invest ratio is telling, and there is a lot of time
wasted talking to startups where the current VC partner is not the right
person to be evaluating the company. I would guess a good fraction of those 99
end up getting investments, but by a VC better suited to evaluate them.

This is connected to decision making. The paper lists management as the most
important factor, which I would agree with, but mostly because the VCs are
domain specialists. By the time decision making gets intense, they already
know (usually) how they feel about the business model. That doesn't mean it
isn't as important, it is just a lot harder to judge talent.

------
chatmasta
For anyone interested in this subject, I highly recommend reading "Venture
Deals" by Brad Feld. It's expensive but if you plan on raising money it's 100%
worth it.

~~~
mathattack
Outstanding book - should be a must read for any entrepreneur looking for
outside money. It's very cheap compared to a mistake in a negotiation. :-)

------
beachstartup
like in most businesses, i'm betting there's a whole lot of effort put into
formally understanding the structure, data, and processes involved in making
decisions, but at the end of the day, things like social proof, gut feelings,
greed, and fear are going to have an outsized, possibly over-riding influence.

------
puppetmaster3
Nope.

Fear and greed. Is there a mob of VCs after them? Lets chase.

Are they chasing us? Lets run away.

~~~
spaceflunky
This is the correct answer.

------
meeper16
Like poorly rich children that go to sleep. The opposite of Hooks children.

