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    How Do Venture Capitalists Make Decisions?
    23 Sep 2016Working Paper Summaries

    How Do Venture Capitalists Make Decisions?

    by Paul A. Gompers, William Gornall, Steven N. Kaplan, and Ilya A. Strebulaev
    This study surveys 885 institutional VCs at 681 firms asking how they make decisions across eight areas: deal sourcing; investment selection; valuation; deal structure; post-investment value-added; exits; internal VC firm issues; and external VC firm issues.
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    Author 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).

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: September 2016
    • HBS Working Paper Number: NBER Working Paper Series, No. 22587
    • Faculty Unit(s): Finance; Entrepreneurial Management
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    Paul A. Gompers
    Paul A. Gompers
    Eugene Holman Professor of Business Administration
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