10
Jan

Venture Capital Data: Opportunities and Challenges

Venture Capital Data: Opportunities and Challenges

by Steven N. Kaplan and Josh Lerner

Executive Summary — Venture capital is a relatively small financial institution receiving a large amount of theoretical, empirical, policy, and media interest—perhaps because venture capital encompasses the extremes of corporate finance challenges: uncertainty, information asymmetry, and asset intangibility—and yet has been successful at growing many leading companies. This paper looks at the availability of information about venture capital. While it is it is difficult to paint in definitive terms the level of investment activity and fund performance, the quality of information available has increased in recent years and will likely continue to do so going forward.

Author Abstract

The authors describe describe the available data and research on venture capital investments and performance, and comment on the challenges inherent in those data and research as well as possible opportunities to do better.

10
Jan

How Do Venture Capitalists Make Decisions?

How Do Venture Capitalists Make Decisions?

by Paul A. Gompers, William Gornall, Steven N. Kaplan, and Ilya A. Strebulaev

Executive Summary — 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.

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).