Initial Screening

The process used by venture capitalists to make investment decisions lies at the heart of venture capital investing. Practitioners of venture capital regard the venture capital process as a combination of art and science. The science relates to the application of specific and concrete decision criteria to a detailed and technical investigation of the market or industry, competition, technical issues, the investee firm’s financial performance, and its valuation. By relying on internal and external resources, venture capitalists are able to arrive at concrete, technical conclusions about a firm’s future prospects and its past operational performance. There are, however, other aspects of the assessment that are more difficult to ascertain. The “art” of venturing relates to the “soft,” unquantifiable, less tangible, non-concrete, and subtle evaluations embodied in the assessment of people, deal terms, negotiating tactics, and the “investment story.” Sometimes referred to as “venture capitalist intuition,” this assessment can be more appropriately categorized as an experience-based judgment call. Some academic researchers argue that the traditional approaches based on the concrete assessment of tangible criteria may be less reliable and relevant to venture capital decision-making today.