The most critical aspect of any successful startup is funding. Venture capital (VC) funds are one of the best sources of funding for startups that are lucky enough to woo them.
A new research paper by Harvard Business School professor Paul Gompers entitled “How Do Venture Capital Funds Make Decisions?” includes survey results from 885 institutional venture capitalists. One of the topics the survey covered was how VC funds choose their investments.
How It’s Done
The process begins with a pipeline of hundreds of potential investment opportunities. VCs then select only a handful to actually fund.
A number of entrepreneurs struggle over coming up with the perfect product idea for their startup. Surprisingly, a startup’s product is not nearly as important to a VC’s funding as its management team and its business model.
“The team is more likely to be the most important factor for early-stage investors and IT investors than for late-stage and healthcare investors,” Gompers added.
When he dug deeper to ask exactly what VCs look for in a management team, Gompers found that ability is the leading factor. VCs also value industry experience as the second most-important factor followed by passion, entrepreneurial experience and teamwork.
The paper also included some insightful statistics about the VC decision process. The average VC deal takes…
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