Ratio of Deals Reviewed to Investments Made

Recently, I was reading the limited partner quarterly updates for a fund where I’m an investor. In the update, the author highlighted that the fund had reviewed 1,000 potential deals last year and invested in four companies. At a ratio of 250:1, it’s clear that there are many more startups trying to raise a Series A than there are Series A investments (see the Series A crunch talked about four years ago).

Here’s how the investment process might work at a venture fund:

  • 250 deals reviewed
  • 25 one-on-one pitches (where the entrepreneur pitches a single partner)
  • 5 full partner pitches (where all the partners hear the pitch)
  • 2 term sheets
  • 1 investment

Raising money is much harder than most entrepreneurs expect. With funds seeing so many opportunities, but only being able to invest in 1-2 companies per year per investor, it’s clear that most entrepreneurs will feel rejected when out raising money.

What else? What are some more thoughts on the ratio of deals reviewed to investments made?

One thought on “Ratio of Deals Reviewed to Investments Made

  1. Hi David, I would be interested to see if you feel that this process is right (or have some analysis), not in the sense of how many are rejected or taken up but more in the sense of how many were successfully funded and then failed as well as how many a fund rejects that are invested by other firms and become successful. My thoughts are that the industry is very bad at working out what will be successful and what will fail. As an example Larry and Sergey originally pitched the Google search IP before it become Google to a number of firms while they were still at Stanford and got rejected. How do you pick the right idea to invest in on a more regular basis?

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