This article describes a set of interviews with four Silicon Valley financial venture organizations regarding the framework they employ when evaluating potential opportunities. The participating firms include Kleiner, Perkins, Caufield, and Byers (KPCB), Menlo Ventures, Trinity Ventures, and Alta Partners, all of which have made substantial contributions to keystone organizations throughout the industries of technology and science, among others. Each business responded to several questions of a similar nature covering themes such as the assessment of business models, due diligence, financial analysis, decision processes, the role of risk, and the utility of exit routes.
When deciding upon ventures KPCB looks for large market potential, competitive edge with the ability to last, are on the fence about patent value, strong entrepreneurship skills, and a well-timed business model. Due diligence is conducted with a focus on technology, customer responses, entrepreneur references, and utilizing the knowledge of industry experts during the decision-making process. KPCB does not put much value in projections and instead focuses on costs with simple marginal analysis. They address risk by evaluating missed opportunities and light consideration of risk-to-reward ratio, while not relying on exit routes due to their preference for high-risk high-reward investments that would not be reasonable to offload.
Menlo Ventures concentrates on the market itself and evaluate business models with cautious scrutiny. Due diligence is conducted in-house and centers on customers. Their funding process takes a considerable amount of time, while financial analyses are examined primarily for evidence of errors in methods. Risks are managed using current and projected market shares while IPOs are always considered as eventual exit strategies. Trinity differentiates their approach by focusing on the establishment of a strong and steady CEO and relying on a bottom-up analysis method developed by a team of experts. Alta Partner places similar confidence in the abilities of skilled people while also examining existing market conditions, analyses, and standard models to assist in the decision-making process.