In theory, VCs have the same standards for making investments at any point in time. However, I am under the impression that this does not hold true in practice.

VCs typically take into consideration the context of in which each investment is made. For example if the fund is performing poorly, they may increase their standards of investment, leading to longer diligence periods and a higher propensity to say ‘no’. However, if the fund is already doing very well VCs might be willing to take a little more risk and go for a big win.

Many of these nuances are not transparent to entrepreneurs, making it difficult to integrate them into their fundraising strategy. However, there are a few more obvious considerations.

• Newly Raised Funds: After going through the long period of raising money, VCs are typically itching to make some investments. While some may be picky about their first deal in a new fund, VCs are generally get to ‘yes’ slightly easier when they have fresh capital.
• The End Of A Fund: At the end of a fund the investment mentality is typically binary. If the fund has performed well, VCs will be likely to take more risk. If it has not, they will be more conservative.

At the end of the day, these factors will not likely change which funds you target. However, they should help you understand the VCs perspective in the decision making process.

Comments

[Bobby Martyna]

This is a very valuable insight.

While it's never good to reflect too hard on why a 'no' or 'no answer' was received, this sheds additional light on how completely disconnected the value or fundability of a new venture can be from the decision rendered by a given firm.

One wonders, sadly, how many entrepreneurs may have made changes to their market assessment, the plan, the team, or even their optimism about their business because a certain firm indicated a venture was perhaps 'too risky' or 'needs to be proven' when in reality it was too risky for them at that point in the fund distribution.

Other 'arbitrary' factors have been documented in blogs that are pretty open book on the decision process, but I haven't seen this one listed -- thank you!