Noisy Minorities in Venture Investing

Most venture partnerships have a unanimity rule when it comes to making investment decisions. Either everyone agrees, or the deal doesn’t get done. Some partnerships ratchet it back one level to mere majority rule, but the effect is the same. All (most) people in the room need to agree before a deal gets done.

And that’s generally dangerous, of course. Consensus in pretty much anything leads to mediocrity, and venture investing is no different. If everyone agrees, and assuming all the partners weren’t grown in the same gene pool, then you’re probably either doing something staid, or the market is past its peak. After all, you need some risk in venture investing, and when everyone “gets” the deal then too much of the risk is gone.

That’s why I’m fond of partner models where unanimity is not only not required, but majorities against you can even be overturned. For example, a couple of flag-waving wild-eyed supporters of a deal might be able to overturn a majority of weak “No”s. When most funds look at their history they often find that those unanimity deals are the ones that return 3x cash, or get bridged into infinity, while the ones where a noisy minority gets its way more often turns into either a flop or a ten-bagger.


  1. Brent Buckner says:

    Do you have evidence that the unanimity deals provide a lower risk-adjusted return, or is your concern dominated by VCs providing LPs a lower risk/lower return profile than the VCs claim?