The Impact of the External Environment on Venture Capital Decision-Making and Startup Financing

This article argues that venture capital (VC) investment decisions are shaped by the broader economic environment rather than made in isolation. While prior research largely overlooks how the importance of screening criteria evolves over time, our findings show that their relative weight shifts during periods of macroeconomic instability. Drawing on five semi-structured interviews with Germany-based VC decision-makers, complemented by practitioner interviews and podcasts, we find that investors adopt a more selective and risk-averse stance in times of crisis. They extend due diligence processes, negotiate stricter and more investor-friendly terms, and intensify post-investment monitoring. Respondents also reported a shift from qualitative assessments—such as team quality and entrepreneurial vision—toward quantitative indicators of financial resilience, including capital efficiency, cash runway, and unit economics. However, the extent of this shift varies by investor type, fund strategy, and individual cognition. The study contributes to research on VC decision-making, crisis investing, and power dynamics, offering practical implications for both investors and startups. For investors, it illustrates how external shocks reshape evaluation behavior, governance practices, and risk management. For startups, it underscores the importance of demonstrating financial discipline, operational resilience, and credible pathways to profitability in uncertain environments.