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VC: External Survey or Panel

    1. Description
      1. While not common, there are some investors who use a system of asking outside experts for input or effectively to make the decision for them.  Sometimes this takes place as a committee meeting where the judges or selection panel discusses a series of applications or proposals. Other times this may be a survey where the members of the panel do not speak to each other and share their independent judgment.
    2. Benefits
      1. Borrow Expertise – If the investor does not have early-stage investment expertise in-house and may not want to pay to build it, then it can make sense to borrow it.  The goal may be to avoid immediate wipe outs or common mistakes that those with more expertise will point out.
      2. Reduce Pressure on Investor Staff – If the investor has other roles and/or relationships with the applications/potential investees, it may be useful to shift the responsibility of the selection to a 3rd party
      3. Reduced Financing Risk – If a relevant sample of the VC universe is included in the decision process, the hope would be to reduce future financing risk. Founders and companies with certain attributes are more likely to be funded by VCs and investors putting less money in early on without the ability to support a company are often depending on other investors to step in.  Particularly if the GP in question is investing very early, having later stage VCs around the table who feel connected with or knowledgable about the portfolio should reduce financing risk.
      4. Legal Reasons – If the investor is a nonprofit (501c3 or similar) or affiliated with a nonprofit, they may be reducing the legal risk of a conflict of interest or other issues. 
    3. Trade-offs
      1. Hard to Have Vision – If the investment decision is being outsourced to a survey or panel, it is harder to have a tight or different vision about what types of companies or founders are desirable. This is likely not the strategy for a GP who is demonstrating independent thought or has a clear thesis, as it will be hard to have the panel understand and apply that unless it is very straightforward.
      2. Cuts off Ends of Distribution – While the hope would be to reduce financing risk and of making common mistakes, if a panel is voting or providing survey results that are averaged, the investor runs the risk of missing the very best companies. If the best return is from companies that do well but are not popular at the time of funding, almost by definition, the companies chosen will be more in the popular category and therefore may reduce upside.
    4. Examples
      1. Plug & Play
      2. Yale Entrepreneurial Institute
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