![]() “My peers and partners help me quickly sift through opportunities and prioritize those I should take seriously. What’s his primary source of leads? “I’ve found that the best deals often come from my network of trusted investors, entrepreneurs, and professors,” he told us. The first task a VC faces is connecting with start-ups that are looking for funding-a process known in the industry as “generating deal flow.” Jim Breyer, the founder of Breyer Capital and the first VC investor in Facebook, believes high-quality deal flow is essential to strong returns. They also offer insights to educators training the next generation of founders and investors leaders of existing companies seeking to emulate the VC process policy makers trying to build start-up ecosystems and university officials who hope to commercialize innovations developed in their schools. Our findings are useful not just for entrepreneurs hoping to raise money. However, the survey was not anonymous, and we matched the respondents with VentureSource and other data sources. The survey was fully confidential, and all the reported results are based on an aggregation of many responses to exclude the possibility of inferring any specific respondent’s answers. We administered the survey between November 2015 and March 2016. Finally, we used the contact information of VCs in the VentureSource database. The National Venture Capital Association generously gave us a list of its individual members. We also tapped the Kauffman Fellows program’s data on its VC alumni. According to a study by Pitchbook, more than 40% of the VCs with MBAs graduated from one of those schools. To solicit respondents to our survey, we used alumni databases from the University of Chicago Booth School of Business, Harvard Business School, and the Stanford Graduate School of Business. We received responses from almost 900 venture capitalists and followed up with several dozen interviews-making our survey of VCs the most comprehensive to date. Specifically, we asked about how they source deals, select and structure investments, manage portfolio companies post-investment, organize themselves, and manage their relationships with limited partners (who provide the capital VCs invest). To pull back the curtain, we recently surveyed the vast majority of leading VC firms. But while the companies that VCs fund may make headlines and transform entire industries, venture capitalists themselves often prefer to remain in the background, shrouded in mystery. To be sure, most of us have the broad sense that they fill a crucial market need by connecting entrepreneurs who have good ideas but no money with investors who have money but no ideas. public companies.ĭespite all that, little is known about what VCs actually do and how they create value. Consider that in 2015 public companies that had received VC backing accounted for 20% of the market capitalization and 44% of the research and development spending of U.S. Venture capital has become an essential driver of economic value. Amazon, Apple, Facebook, Gilead Sciences, Google, Intel, Microsoft, Whole Foods, and countless other innovative companies owe their early success in part to the capital and coaching provided by VCs. Over the past 30 years, venture capital has been a vital source of financing for high-growth start-ups. ![]() These insights into VC practices can be helpful to entrepreneurs trying to raise capital, corporate investment arms that want to emulate VCs’ success, and policy makers who seek to build entrepreneurial ecosystems in their communities. In this article, they share their findings, offering details on how VCs hunt for deals, assess and winnow down opportunities, add value to portfolio companies, structure agreements with founders, and operate their own firms. Strebulaev of Stanford Business School conducted what is perhaps the most comprehensive survey of VC firms to date. Kaplan of the Chicago Booth School of Business, and Ilya A. To pull the curtain back, Paul Gompers of Harvard Business School, Will Gornall of the Sauder School of Business, Steven N. ![]() While the companies they’ve backed-Amazon, Apple, Facebook, Google, and more-are constantly in the headlines, very little is known about what VCs actually do and how they create value. For decades now, venture capitalists have played a crucial role in the economy by financing high-growth start-ups. ![]()
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