Do Venture Capitalists care about innovation?

Recently, came across an article on the funding start-ups have received in the last year – Larry Cheng has a blog post explaining the financials.

The fictional small VC firm made a better cash on cash return for its LPs through one winner, than the large VC firm could accomplish by getting all top 10 winners.  That’s the law of large numbers in effect.

This probably shows why VCs invest in so many start-ups. The Top-25 active VCs are shown in the TechCrunch rankings.

How do the VCs select the start-ups? Do they look at the business-model or the innovation in the start-up involved? I doubt so.

In fact, Vivek Wadhwa wrote about the same topic in his post on TechCrunch.

It is the entrepreneurs who fuel the economy, not the venture capitalists or investment bankers.

If the start-ups have enough networks and connections in the VC world, it makes it easier for them to get an investment from the VC. If not, the team would have to struggle initially and get the product highlighted in the mainstream world.

The next question is – how many successful start-ups were actually funded by the VC’s in their initial days? Not many. How can a young innovator get the eyes and ears of an angel investor? Any thoughts?

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