How do venture capitalists make decisions? What 885 VCs said

A survey of 885 venture capitalists asked how they choose. The answers are less about the deck than founders think.

The survey was run by Paul Gompers, Will Gornall, Steven Kaplan and Ilya Strebulaev between November 2015 and March 2016, as the NBER Digest summary explains. It's still the study academics and journalists reach for when they ask how VCs decide. Most respondents were American, so it's a global reference, not an Indian one. We use its numbers on diligence time in our pillar on evaluating early-stage startups in India, and its picture of the funnel sits behind our map of how capital moves in India. Here's what else it found.

The team outranks the deck

Venture capitalists in the survey put the founding team ahead of the product, the market and the business model when choosing deals. In the 2016 working paper, 95% of firms named the team as an important factor and 47% named it the most important, more than any other single factor.

The business still counts. Business model was called important by 83% of firms, product by 74%, market by 68% and industry by 31%. But only 37% rated a business factor as the single most important one. Valuation? Fifth overall.

And when VCs looked back at their own deals, the team explained both ends. They named it as a factor in successes for 96% of respondents. In failures, 92%. The deck gets you the meeting; the team decides the outcome, at least in the minds of the people writing cheques.

So what does that mean for you? If you invest, it means your notes on a founder deserve as much structure as your notes on the market. If you're raising, it means the person across the table is mostly reading you. They'll check what you've done before, how you've handled a bad quarter, and who'll vouch for you when you're not in the room. You can't fake that. You can prepare it.

Few VCs run the spreadsheet you'd expect

Few VCs in the survey valued startups with discounted cash flows. They used the multiple of invested capital first and internal rate of return second. A sizeable minority used no formal metric. For early-stage investors, the spreadsheet matters less than founders assume.

The numbers are blunt. Among all respondents, 9% used no quantitative deal evaluation metric. Among early-stage investors, 17%. One in five VCs overall, 20%, said they don't forecast cash flows when they invest. At early stage that rose to 31%.

Don't read that as carelessness. At seed, there's barely a cash flow to forecast, and you know it as well as they do. So the work shifts to things you can check: who the founders are, whether the market math holds, whether the paperwork is clean. If you're a founder polishing a five-year model, you might be polishing the wrong thing.

VCs say they back the jockey over the horse. The survey suggests they mean it.

What VCs negotiate, and what they won't

Surveyed VCs said they would hold firm on the terms that protect control and downside, and bend on the rest. Pro-rata rights, liquidation preferences, anti-dilution protection, vesting, valuation and board control were the hardest to move. The option pool, participation, amount, redemption and dividends were easier.

Read that list from both seats, whichever one you're in today. Founders learn where pushing costs goodwill. Angels learn which clauses a later VC will insist on, and how they'll sit on top of yours. Our explainer on liquidation preference in India shows what one of those hard terms does to an early shareholder in a sale.

Selection beats sourcing, by their own account

Asked what creates their returns, VCs ranked picking the right deals above finding deals or helping companies after investing. Deal selection was rated most important by 49% of VCs. Post-investment help, 27%. Deal flow, 23%. Choosing well is the job.

It's a narrow funnel, too. You'd feel it from either side. The average firm in the paper looked at more than 400 companies a year and made five investments. Its partners spent about 22 hours a week networking and sourcing, and 18 hours with portfolio companies, in a 55-hour week. Where those 400 companies come from is the subject of our note on where early-stage deal flow comes from in India.

What carries over to India, and what doesn't

The survey's logic travels well; its numbers don't. It describes institutional VCs, mostly in the United States, a decade ago, and the authors themselves say the sample leans toward more successful firms. Use it as a set of questions to test against your own process, not as a benchmark for Indian funds.

The scale problem in India is real, though. A Press Information Bureau backgrounder from June 2026 puts DPIIT-recognised startups at over 2.3 lakh. If the team really is the deciding factor, the bottleneck is how fast you can verify one. Three things you can do this week:

• Write down your team criteria before the next pitch, so you judge every founder against the same list.
• Call references the founder didn't give you. Our guide to reference checks for startup investors has the questions.
• Separate the checks you can run from public records, such as filings at the Ministry of Corporate Affairs, from those that need the data room.

Start with the founder, then check the rest

The research says the team decides. Your process should check it first. At MyStartupValley, each startup is evaluated on six due diligence parameters, starting with founder verification, then market sizing, cap table, legal, client agreements and compliance. Want companies with those checks done, sorted by sector and stage fit? See the investor workspace.

Questions

How do venture capitalists decide which startups to invest in?

In a survey of 885 VCs, the management team came first: 95% of firms called it important and 47% called it the most important factor. Business model, product and market followed. Valuation ranked fifth overall. The survey is mostly American, so treat it as a global reference.

Do venture capitalists use DCF to value startups?

Few do. The survey found VCs rely first on the multiple of invested capital and on internal rate of return instead. Among early-stage VCs, 17% used no quantitative metric at all and 31% said they don't forecast cash flows when they invest.

Which term sheet terms do VCs refuse to negotiate?

Surveyed VCs said they were least flexible on pro-rata rights, liquidation preferences, anti-dilution protection, vesting, valuation and board control. They were more flexible on the option pool, participation rights, the amount invested, redemption rights and, above all, dividends.

Does the VC decision research apply to India?

Partly. The survey covered institutional VCs, most in the United States, between November 2015 and March 2016, and the authors say it leans toward more successful firms. No comparable published survey of Indian VCs exists that we could find, so use its findings as questions to test.

Sources: Gompers, Gornall, Kaplan and Strebulaev, How Do Venture Capitalists Make Decisions?, NBER Working Paper 22587, Jun 2016 (Journal of Financial Economics, 2020) · NBER Digest, How Venture Capitalists Make Decisions, Dec 2016 · Press Information Bureau, Empowered Youth, Stronger Nation (backgrounder), 13 Jun 2026