- Harvard Business School professor looks at different approaches taken by venture capitalists depending on whether they’re a tighter-knit group or more dissociated
- Close groups of investors are more likely to pursue an acquisition, while dissociated groups are more likely to pursue an IPO
- Understanding the benefits and risks of each approach
Summary by Dirk Langeveld
Knowing how a venture capitalist firm will approach your startup is an important consideration when pursuing funding, according to a recent analysis by Harvard Business School professor Rory McDonald.
McDonald looked at the outcomes of more than 42,000 new ventures in his research. He advises that entrepreneurs know more about a VC firm’s structure and likely actions instead of simply jumping at an available funding opportunity.
McDonald’s findings included:
- VCs who work with the same group of partners are more likely to pursue a quicker exit from a company, often by seeking an acquisition by a larger business
- This type of group could provide a stronger path to success due via pooled resources and industry connections, but could minimize founders’ role in the business
- A more dissociated group of VCs has a greater likelihood of pursuing an exit through an initial public offering, which leaves founders with more control but entails more risk along the way
- Sixteen percent of the ventures analyzed by McDonald ended in an acquisition while just 2.9 percent ended in an IPO
