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December 03, 2007


Aner Ravon

But what about some real life parameters?

For example fear of making a mistake? The baseball model is true IF YOU SWING AT EACH AT BAT. A baseball player does not have the option of not stepping to the on deck circle....

I personally found that VCs choose their investments based on:
1. Past familiarity with the founders. By far, the most important parameter. It doesn't have to be personal acquaintance, it could also be familiarity with the founders history.
2. Perceived value of the investment - how it will impact the other investments, the VCs new fund in the pipe, etc.
3. Partner's own ambition within the VC - desire to "own" a sector, etc.
4. VCs overall portfolio ("we need a web 2.0 company")

You get my drift.

It's not that the text book doesn't matter, of course it does, but it isn't remotely just a rational process.


I am certainly not arguing that the process is 100% rational. Obviously, all manner of personal considerations come to play. I don't think the fear of making a mistake is necessarily a major one of these. As we know, the vast majority of startups fail for any of a hundred different reasons and that's part of the risk we take as venture investors.

In addition to personal considerations, there is also the matter of the fund's overall strategy (for instance trying to build a portfolio of diversified companies versus focusing on companies within a particular sector).

None of this contradicts the overall framework of looking for companies that we believe have the potential for an outsize exit. It's less a textbook than a general heuristic.

amit shafrir

what is the average lifespan of an investment (from initial to exit)?
what is the expected return from a fund for LPs ?

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