I would like to say that in my readings, I have learned that venture
capitalists rely heavily on the referrals from others (underwriters, other
VCs, etc.) in making a decision about whether or not to fund a business.
When the venture capitalist receives knowledge of the deal via a quality
referral, however, the technical merits of a business plan are less
rigorously judged (Fried & Hisrich, 1994). Steiner & Greenwood (1995)
found that breaking into the venture capitalists' networks were found to be
more important in securing venture capital backing than the quality of the
business plan.
So, VC's decisions about whether or not to accept a deal is not an isolated
activity. This is another reason why so many venture capitalists
syndicate--to get that "team" opinion.
**** cites: Fried, V. H., & Hisrich, R. D. (1994). Toward a model of
venture capital investment decision making, Financial Management, 23(3),
28-37. Steiner, L., & Greenwood, R. (1995). Venture capitalist
relationships in the deal structuring and post-investment stages of new
firm creation, Journal of Management Studies, 32(3), 337-357.
Ann Echols