Microsoft Ventures head Mukund Mohan has posted some extracts from an US academic paper on "How Do Venture Capitalists Make Decisions?". Some highlights:
VC-backed Cos Dominate the IPO Scene
Roughly one-half of all true IPOs are VC-backed even though fewer than one quarter of 1% of companies receive venture financing
10% of VC investments are made w/o any introductions!
Over 30% of investments are generated through professional networks. Another 20% are referred by other investors and 8% from a portfolio company. Almost 30% are proactively self-generated. Only 10% come inbound from company management.
VCs invest in 2.5% of the companies they consider.
The median firm closes about 4 deals per year. For each deal in which a VC firm eventually invests or closes, the firm considers roughly 151+ potential opportunities
VCs want 5x return on their investments.
The average required IRR is 31%. Late-stage and larger VCs require lower IRRs of 28% to 29% while smaller and early-stage VCs have higher IRR requirements. The same pattern holds in cash-on-cash multiples, with an average multiple of 5.5 and a median of 5 required on average, with higher multiples for early-stage and small funds
What Term Sheets terms Entrepreurs Can Negotiate
73% of the vcs (ie predominantly most!) don't need (or demand) Full-ratchet anti-dilution protection rights
55% don't need Redemption Rights
47% don't need Participation Rights
19% of VCs don't need Pro-rata Rights
As for Option Pool Rights, "VCs were most comfortable negotiating these rights"
VC Firms are Leaner than Most Startups they Fund
The average VC firm in our survey employs 14 people, 5 of whom are senior partners in decision-making positions.
How Long do VCs work? And how they split their time.
VC’s report working an average of 55 hours per week.
VC firms spend the single largest amount of time working with their portfolio companies, 18 hours a week.
Consistent with the importance of sourcing and selecting potential deals, sourcing is the second most important activity, at 15 hours per week.
Networking is the fourth most important at 7 hours per week