Article Title

RUNNING THE GAUNTLET: A STUDY OF HOW THE MEMBERS OF VENTURE CAPITAL FIRM INVESTMENT TEAMS ADVOCATE AND EVALUATE DEALS (INTERACTIVE PAPERS)

Abstract

How do venture capitalists (VCs) make investments? In this paper I present a grounded theory of the within-firm advocacy and evaluation activities through which all venture-backed deals must pass. The theory is presented at both the individual and firm levels.

At the individual level, I present the investing process as involving each investment team member in one of two primary roles, as advocate or evaluator. For each deal that is seriously considered by the members of a VC firm’s investment team there will be at least one advocate for the deal and more than one evaluator. Next, I show the techniques that advocates use to support deals (analytical, emotional, political, and hybrid) and the techniques that evaluators use to judge deals (commenting, questioning, challenging, and vetoing).

At the firm level, I discuss patterns of advocating and evaluating practices that the members of VC investment teams exhibit. I present four advocating/evaluating patterns: firm of one, trusted friends, professionals, and tiered hybrid. I conclude this section with a discussion of how the advocating/evaluating interaction patterns of a firm change over time. In particular, I consider the influences of: planned change in investment strategies, purposeful contrast to other firms, responses to past performance, and the influence of historical context.

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