- Short Description:
- When deciding if the VC fund is going to invest in an outside company, the process is for all partners to agree on making the investment. If any single partner is sufficiently uncomfortable, that person effectively has a veto over making the investment.
- Benefits:
- May act as a quality bar
- Reduces reputation risk or may increase palatability to LPs
- Increases firm-level commitment to supporting the company
- May reduce off-theme, nepotistic or self-dealing investments. Although there are other ways to address this point.
- May build team feeling particular when the number of partners is small
- Trade-offs:
- Some believe that the most valuable investments will be polarizing or non-obvious at first. The firm may not be equipped to do those investments if too many people must agree on such a deal.
- As a number of partners increases, the veto right can contribute to a dynamic of political decision making. Some firms engage in vote trading, where the merits of the investment are less important than trading favors between partners.
Deciding: Consensus (or Veto)
