How to increase the chances of obtaining financing from a venture capital firm?

Professor at HEC Lausanne, Jeffrey S. Petty, and his co-authors Marc Gruber, EPFL and Dietmar Harhoff, Max Planck Institute, leverage unique access to VC deal flow data to reveal a link between the source of business proposal referrals and their progression along the deal flow pipeline.

The Issue

With billions of dollars at stake, the search for the next unicorn startup is fiercely competitive. Yet of the thousands of business proposals that venture capital (VC) firms receive, only 1% attract funding. For entrepreneurs the challenge is how to improve the chances of their proposal attracting investment. At the same time VC firms need their business proposal scanning and assessment processes to be as efficient and effective as possible – making sure that they don’t overlook the next Google or Tesla. 

Why the research is important

One of the main barriers to investigating the way VC firms process business proposals is access to data. This is where HEC Lausanne professor Jeffrey Petty’s research stands out. Petty was provided access to a VC firm’s archives where he was able to go through the firm’s proposal logs covering 2,508 investment selection processes in fine detail. This enabled Petty and his team to identify a number of factors that appeared to affect whether and how far a proposal progressed along the deal flow funnel.

What our professor has to say

Petty offers some key insights for entrepreneurs. First the referral source matters, says Petty. Submitting an investment proposal via an insider offers the best prospects for progress along the pipeline. Insiders are either the limited partners who have invested in the fund, VCs who they know and entrepreneurs who have already attracted investment. “If a proposal comes from a referral, especially an insider, they’re going to give it that little bit of time, just out of professional courtesy,” says Petty. “So it’s about targeting and finding the insider.”

When sending a proposal to a VC firm, know who you are sending it to and tailor the proposal accordingly. As Petty notes, VCs prioritize different factors when assessing a proposal, one might stress the importance of the team, another might be focused on the business idea. “Don’t just send it to a firm, send it to a specific VC in that firm,” says Petty. “Find out if they are working on deals and what kind. Find out everything you can about that VC firm and the people who are making the decisions.”

Intermediaries, like brokers and banks, have their place in the venture capital ecosystem. But as a route to VC investment the research findings suggest that an intermediary’s template submission offers no advantage over a direct submission from the entrepreneur, and is far less effective than going via an insider.

Another lesson, says Petty, is the importance of timing. Investing a VC fund is a dynamic process. The more investments made, the less money available for investment, the less time for proposal assessment. The VCs spend more time on the portfolio companies, while the types of business they want to invest in become more specific.  It’s better for entrepreneurs to submit their proposal early in the lifecycle of a fund and for VCs, who have allocated most of a fund and are trying to make those last few deals, to focus on their insider network.


The research shows that thorough analysis of VC deal flow logs can improve the ability of the firm to find the best deals for the portfolio and make the most effective use of the VCs’ time. It allows them to identify missed opportunities that were subsequently profitable and adjust internal processes to maximize the success rate.  In a billion dollar business the time spent on this type of analysis is a small price to pay for the potential returns.

While for the entrepreneurs the deal diary data reveals how they can shift the odds of obtaining investment in their favour.

Petty, J. S., Gruber, M., & Harhoff, D. (2023). Maneuvering the odds: The dynamics of venture capital decision‐making. Strategic Entrepreneurship Journal, 17(2), 239-265.

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