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How do venture capitalists use investment criteria in the decision making process of funding a startup?

Smit, J. (2018) How do venture capitalists use investment criteria in the decision making process of funding a startup?

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Abstract:This paper aims to find out how venture capital investors use investment criteria when assessing a startup funding request. Three different theories have been examined to answer the research question. Theory about the investment process thought us that investment criteria are used in the Pre-Deal phase, in the screening and evaluation phase. Theory about venture capital investment criteria showed us investment criteria could be distinguished into five categories: (1) the entrepreneur/team characteristics, (2) characteristics of the products/services, (3) market characteristics, (4) financials and (5) other characteristics. In which the entrepreneurial/team characteristics are the most important. The third theory about individual decision making based on MBTI showed us that there are differences in the way we take in information and make decisions. On the bases of interviews with four investors from different venture capital funds in the Netherlands, it can be assumed that the investment process looks similar to the process provided by theory. However, the investment criteria differ from fund to fund. Some venture capital funds valued patentable technology more than entrepreneurial/team characteristics. Another important factor in the decision making process of venture capital funds are partners. The influence of the fund’s partners is medium/high in all cases. This is because the venture capital fund creates the ecosystem for the startup, so when partners (and potential clients) don’t believe in the startup, it will be very difficult to create this ecosystem. Combining MBTI and the investment criteria shows us that the most common personality is the combination of “SF” which means the investor focuses on concrete, realistic and practical information, but makes the final decision with its heart: listen to the feeling one has after all the information provided.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Link to this item:http://purl.utwente.nl/essays/75382
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