In conversation with Matthew Rhodes-Kropf about “Chasing Outliers”, there are at least 4 group dysfunctions that often occur with unanimous group decision making in VC partnerships. Being in the business, these ring true to me.
1. Lack of real feedback between partners. Partners are afraid to give critical feedback of other partners’ deals because that could incur criticism on their deals in return. Requiring unanimous approval actually impedes real feedback.
2. Deal teams sell more. Because the deal requires unanimous consent to be approved, the deal team is put in a position of having to sell everyone. Even if unconsciously, this leads them to emphasize the flaws less as they are in perpetual committee sales mode.
3. The committee approves deals it doesn’t believe in. The only scenario where a block matters is when everyone else on the committee is voting yes, and one person votes no. That’s incredible pressure on a potential no voter – to go against all committee members and all deal team members to block an investment. So what happens? No one votes no, so they end up voting yes on deals they don’t believe in.
4. The committee more easily supports deals with many good characteristics rather than more controversial deals with an exceptional characteristic and many flaws – despite the latter often being the best investments. The more controversial deals are weeded out mid-process and never get to a final vote as the firm focuses on more palatable investments to the committee.
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https://www.YouTube.com/watch?v=ejeIz4EhoJ0
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