How do Venture Capitalists (actually) make decisions? Internal evidence from a private startup accelerator

Sep 19, 2026

Using a proprietary dataset from a major U.S. venture capital-backed startup accelerator, the study opens the “black box” of VC decision-making. It tracks the full investment selection workflow, including screening, judges’ written comments, internal scores, signed financing contracts, and interview recordings. The analysis identifies determinants of scoring, documents judge-founder homophily biases, and shows how evaluation settings and information types can amplify or mitigate them. It also examines SAFE and KISS contract features and links anchoring and founder constraints to VC term-sheet negotiations.

LanguageEnglish

CategoryPresentations

FormatPDF

Pages87

Reading Time30 min

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ABSTRACT

1. INTRODUCTION

Startup risk, funding gaps, and mentorship barriers

Rise and role of startup accelerators

Limited observability of VC decisions and contracts

How do Venture Capitalists (actually) make decisions? Internal evidence from a private startup accelerator Tristan Fitzgerald Korok Ray Mays Business School Mays Business School Texas A&M University Texas A&M University [tfitzgerald@mays.tamu.edu](tfitzgerald@mays.tamu.edu) [korok@mays.tamu.edu](korok@mays.tamu.edu) March 2025 ABSTRACT Using a proprietary dataset detailing all startup applications, all internal judging scores and judges’written comments, all signed financing contracts, and even all audio recordings of interviews and contract negotiations involving one of the largest venture capital-backed startup accelerators in the United States, we open the ‘black box’ of venture capital (VC) decision-making. We first study the entire internal VC investment selection process by examining the key determinants of judging scores from initial screening through to final portfolio firm decisions. For example, by focusing on how individual VC partners/employees evaluate the same potential portfolio firm, we provide novel evidence on the existence of significant VC judge-founder ‘homophily’ biases and detail how different judging settings (e.g., solo vs. group evaluations; availability of quantitative vs. qualitative information) can amplify or mitigate such biases. Next, we are the first to empirically document the key features of a recent innovation in startup firm financial contracting instruments (namely Simple Agreement for Future Equity (SAFE) and Keep It Simple Security (KISS) contracts) and investigate their relationship with startup firm characteristics and internal VC evaluations. We offer novel insights into the role of a salient ‘anchor’ or ‘reference point’ in setting future equity pricing terms as well as the importance of startup financial constraints in VC term sheet negotiations. Keywords: Venture capital, entrepreneurial finance, business accelerators, financial contracting, portfolio firm selection, homophily JEL Classification: G24, G30, G41, K12, L26, M13 We greatly appreciate the generous time and assistance of our anonymous venture capital fund in supporting this research project. We would also like to thank Juanita Gonzalez-Uribe and Peter Klein, as well as all seminar and conference participants at the Aggie Longhorn Innovation Conference, Baylor University and Texas A&M University, for their invaluable feedback. We acknowledge the generous support of the Mays Innovation Research Center and the Mays Business School. All errors are our own. 1. INTRODUCTION Despite startup firms being a crucial driver of innovation in the economy and a key source of new job creation (e.g., Acemoglu, Akcigit, Alp, Bloom, and Kerr, 2018; Decker, Haltiwanger, Jarmin, and Miranda, 2014), it is a well-known fact that creating a new entrepreneurial venture isan extremely high-risk endeavor (e.g., Hall and Woodward, 2010; Kerr, Nanda, and Rhodes-Kropf, 2014) . In particular, two of the key barriers to startup firm growth are the general lack of earlystage funding sources and the insufficient resources available to adequately train and mentor startup founders (Kerr and Nanda, 2011; Gonzalez-Uribe and Leatherbee, 2018) . As a result, it is estimated that over 80% of“early-stage” startup firms will fail in the so-called “startup valley of death” which generally spans the seed and Series A funding round stages (Gompers and Lerner, 2001) . 1 To address these pervasive funding and educational impediments to startup firm development, there has been an explosion in the number of so-called “startup accelerator” programs across the world, from a handful of accelerators in 2005 to over 7,000 startup accelerator programs worldwide today (Yang, Kher, and Lyons, 2019) . These fixed-term, cohort-based accelerator programs are designed to offer startups some upfront funding and provide startups with an intensive education and mentorship program to promote portfolio firm growth and prepare portfolio firms for raising future

FAQs

What dataset does the study use to analyze VC decision-making?

It uses a proprietary dataset covering startup applications, internal judging scores and judges’ written comments, signed financing contracts, and audio recordings of interviews and contract negotiations.

How does the paper measure determinants of VC judging scores?

It studies the internal VC investment selection process from initial screening to final portfolio-firm decisions, focusing on how different partners or employees evaluate the same potential portfolio firm.

What contract instruments are analyzed, and what key negotiation factors are highlighted?

The study analyzes SAFE and KISS contracts, examining how contract features relate to startup characteristics and VC evaluations, emphasizing anchoring/reference points and startup financial constraints in term-sheet negotiations.

Sep 19, 2026

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