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How Venture Capitalists Make Decisions
A 6-minute video from a Stanford finance professor on how startup investors pick what to fund
Why it’s worth your time
If you work at a startup, or are weighing an offer from one, Ilya Strebulaev's short Stanford video shows what its investors were most likely judging when they said yes. Drawing on a survey of nearly 900 venture capitalists, he walks through how they choose, step by step.
What VCs look for in a startup
- Watch the video.
Listen for the deal funnel, how many startups go in for each one that gets money, and for his comparison of the jockey and the horse. Stanford publishes the full transcript beside the video.
- Write three questions about the founding team.
For a startup you work at or are considering, write three questions about the people running it, such as what they've built before, how they've handled a plan that didn't work, and who has left the leadership team and why. Ask one of them in your next conversation with a founder or manager.
Good moments for this: before an interview with a startup's founderswhen a startup recruiter gets in touch
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Making it work for you
Every workplace is different. Here’s what to think about before you start, and what might get in the way.
Things to think about
The founders who won the money may not be the ones running the company a few years later, and the questions about the team are worth asking again after a big hire or departure, not just once.
Questions people ask
What is How Venture Capitalists Make Decisions about?
A six-minute Stanford Graduate School of Business video in which finance professor Ilya Strebulaev explains what he calls the VC mindset, drawing on his research and a survey of almost 900 venture capitalists: a long funnel in which few startups get funded, and a focus on the founding team.
What is the jockey and the horse in venture capital?
Strebulaev's shorthand: the jockey is the founders and early management team, the horse is everything else, such as the product, business model, market and technology. He says most venture capitalists won't invest without full trust in the jockey.
How many startups do venture capitalists invest in?
In Strebulaev's research, about one for every hundred they consider. He says the median firm looks at about 400 deals a year and invests in four, after a process that takes close to three months.
What it says, and how it holds up
Of every hundred startups a venture firm considers, it funds about one, by the count of Ilya Strebulaev, who founded Stanford's Venture Capital Initiative. A startup first has to get past a judgment about its market and idea, then a meeting with the founders, then a partners' meeting and careful due diligence. The jockey usually counts for more than the horse, he argues: investors back founders and an early team they trust to execute. He adds that the usual tools of corporate finance, such as discounted cash flow, see little use, because a young startup has no reliable numbers to forecast from. He closes by suggesting the rest of us borrow some of that mindset: research before deciding, then a willingness to experiment and fail.
The survey behind the video, published in the Journal of Financial Economics in 2020 with Paul Gompers, Will Gornall and Steven Kaplan, puts it a little more carefully: venture capitalists saw the team as somewhat more important than the business, with real variation by stage and industry. The opposite case has been made too; a 2009 study by Kaplan, Berk Sensoy and Per Strömberg of companies that went from business plan to public offering found the business more stable than the management, and suggested investors weigh the horse more. If you want the longer version of Strebulaev's argument, his 2024 book with Alex Dang, The Venture Mindset, is the next step. A funding round tends to say more about how investors judged the team than about whether the company will make it. From the investors' side there's one more pressure worth knowing: a venture fund tends to depend on a few very large wins to make up for the many startups that fail, so investors may push a company to grow fast instead of settling for a modest sale, and that push can reach employees as ambitious targets. This explains how things usually work; it isn't financial, tax or legal advice for your situation.
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Picked by Truest and described in our own words. The original belongs to its creator. Last updated October 9, 2026. We sell a career membership; where that’s relevant above, we say so.