Allocation of attention within venture capital firms

In this article we use a simple queuing network to model the process through which entrepreneurs receive venture capital funding. Our model focuses in particular on the allocation of venture capitalists' attention between pre- and post-investment activities, and on the degree of selectivity in deciding which ventures to fund. Based upon this model we develop expressions for the financial performance of the venture capital process, both overall and also from the perspectives of the entrepreneurs, investors, managers, and venture capitalists involved. For these financial measures we derive the optimal allocation of attention between pre- and post-investment activities, and the optimal proportion of venture proposals to accept. Further analysis shows how these different financial measures and optimal values respond to changes in the business climate. More interestingly, our analysis also shows where and to what extent the different parties could be expected to agree or disagree on how best to manage the process.