The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies, 2nd Edition

PART Two Making Investments

The only measure of venture capital success is performance. The ability to pick the right companies that generate superior returns is paramount to any professional's success in this business.

The investment process—sourcing, due diligence, negotiation of investment terms, board roles and supporting entrepreneurs—is important, yet secondary. Investors primarily care about strong financial returns. While sourcing investment opportunities is a function of the firm's team expertise and relationships, the venture firm's brand as being entrepreneur friendly has also become an important factor. Investors, who are independent and act decisively, are responsive and treat entrepreneurs as equals attract strong opportunities. Eventually, a strong brand is built upon this foundation.

When it comes to due diligence, seasoned investors are students of the market; if the market is ready, they make quick decisions and actively invest in start-up opportunities that serve the market needs. Management team, product, features and competition are important attributes, yet the best investors rarely overthink and are comfortable in ambiguity.

Mike Maples of Floodgate Fund has invested in some of the leading technology startups in the Silicon Valley. He often completes his due diligence in 10 minutes. “The best deals we have done are the ones where we decided the quickest—which is counterintuitive to me. Ten minutes into a meeting with an entrepreneur, I stopped the presentation, ...