How do venture capitalists decide which startups to back?

“That's a very good question. I think it depends on whether you view, you know, the venture capital firm as a corporation or you just view them as fund managers, right? And I think, you know, they would be a unit innovation, right? So if you look at historically, when you evaluate venture managers like, you know, Sequoia, Accel, Andreessen, you look at the partnerships. You look at, you know, whether the partners has, you know, operating track record, whether they can add value to the portfolio companies. And then whether they, you know, has the brand with the entrepreneurs and so on, right? But, you know, as you evaluate like some of these firms, you look for what is a new high? What's the generation change? Can they maintain, you know, the same, you know, brand reputation and investment acumen as, you know, the earlier GPs, right? But then when you look at the newer models in venture capital, like the Y Combinator or the Entrepreneur First, it less so much on investment acumen. It's about like whether it's a solid corporation or not, right? Because you look at models like an accelerator, it's like a Y Combinator or an Entrepreneur First, right? They create startup or they are almost like a factory of startup at scale, right? So YC graduate,, you know, 450 companies per year to 500 companies per year, or, you know, 2,000 companies, um, in the next 4 years, right? Even more, right? So the way I'm looking at Y Combinator, I'm looking, so I see like a Toyota, Honda, and so on. So I—”

“Gosh, I think like venture, venture capital isn't like this monolith, and like maybe there are the occasional vultures out there. That's just inherent in all industries, that there are people who operate in this way. Um, but there are equally fantastic venture capitals who see venture as this mechanism to deploy way capital into the hands of inspiring founders who are solving important problems with innovative technologies. The other thing to note is that there are many ways to fund a business, whether it's non-dilutive capital, whether it's bootstrapping, whether it's angel investment. And I hope there to be more sort of funding pathways for companies. But yet VC sort of fits in this array of one of the various different mechanisms people can use to fund their company. And what this means is that VC isn't necessarily for everyone. Like, by virtue of how the VC business model works, VCs have to almost invest in these high-growth companies, and they want companies to use the capital to accelerate quickly and hit these benchmarks. But you can still build an equally impactful and awesome company without this form of capital and without this form of acceleration as well. So yes, VCs, you know, have this desire for companies they invest in to grow quickly and do fantastically. And that sort of impacts and plays into how we operate. But the question for people who are building companies is whether, you know, VC funding is for you and also whether the VC you're working with is for you. You're entering into this long-term relationship with the VC and you want it to work well. So yeah, I think the summary here is that, yeah, VCs have this goal and it impacts the way in which they operate. Founders are trying to build a company and have a certain sort of desire and end state, and you just have to figure out if the two marry for what the intention is.”