A Study on the Factors Affecting Investment Decision of Venture Capitalist

Research Article
Open access

A Study on the Factors Affecting Investment Decision of Venture Capitalist

Yue Zhao 1*
  • 1 Columbia university    
  • *corresponding author yz3892@columbia.edu
Published on 13 September 2023 | https://doi.org/10.54254/2754-1169/14/20230805
AEMPS Vol.14
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-71-3
ISBN (Online): 978-1-915371-72-0

Abstract

This article examines the importance of venture capital to the financial industry and the world economy over the past 30 years. Venture capital is a powerful driver of the U.S. economy and the world economy. Further, this paper cites the research results of different authoritative authors from SSRN for a comprehensive discussion. The data source of this paper mainly uses the form of a questionnaire survey. This article mainly explores the standards and procedures used by eight venture capital firms when making investments. These criteria are generating deal sourcing, investment selection decision, tools and factors in the evaluation, contracting and structuring the investments, monitoring and post-investment value-added, VCs' exit, firm internal structure, and relationships. In the end, this paper refers to the importance of factors for venture capital firms to make decisions in different periods. Comparing different research results, it is shown that not only eight factors are the factors that determine venture capital firms' investment decisions, but also luck is part of the reference factor.

Keywords:

venture capital, entrepreneurship, entrepreneurial decision making

Zhao,Y. (2023). A Study on the Factors Affecting Investment Decision of Venture Capitalist. Advances in Economics, Management and Political Sciences,14,140-146.
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References

[1]. Phalippou, Ludovic, The Hazards of Using IRR to Measure Performance: The Case of Private Equity. Available at SSRN: https://ssrn.com/abstract=1111796 or http://dx.doi.org/10.2139/ssrn.1111796.

[2]. Gompers, Paul A. and Gornall, Will and Kaplan, Steven Neil and Strebulaev, Ilya A., How Do Venture Capitalists Make Decisions? (August 1, 2016). Stanford University Graduate School of Business Research Paper No. 16-33, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 477/2016, Available at SSRN: https://ssrn.com/abstract=2801385 or http://dx.doi.org/10.2139/ssrn.2801385.

[3]. Gompers, Paul (1995),“Optimal Investment, Monitoring, and the Staging of Venture Capital,” Journal of Finance, Vol. L, No.5.

[4]. Lerner, Josh(1995),“The European Association of Security Dealers: November 194,”Harvard Business School Case Study.

[5]. Gilson, Ronald J. and Black, Bernard S., Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets (November 1997). Journal of Financial Economics, Vol. 47, pp. 243-277, 1998, Available at SSRN: https://ssrn.com/abstract=46909 or http://dx.doi.org/10.2139/ssrn.46909.

[6]. Kaplan, S.N., Stromberg, P.,(2000),“How Do Venture Capitalists Choose Investments?”, white paper, August.

[7]. Rajan, Raghuram G. and Zingales, Luigi, The Influence of the Financial Revolution on the Nature of Firms (February 2001). CRSP Working Paper No. 525, Available at SSRN: https://ssrn.com/abstract=259537 or http://dx.doi.org/10.2139/ssrn.259537.

[8]. Birley S, Westhead P. 1993. A Comparison of New Businesses Established by 'Novice' and 'Habitual' Founders in Great Britain. International Small Business Journal 12(1):38-60.

[9]. Shane S, Stuart T. 2002. Organizational Endowments and the Performance of University Start Ups. Management Science 48(1):154-170.

[10]. Delmar F, Shane S. 2006. Does experience matter? The effect of founding team experience on the survival and sales of newly founded ventures. Strategic Organization 4(3):215-247.

[11]. Sahlman WA. 1990. The structure and governance of venture-capital organizations. Journal of Financial Economics 27(2):473-521.

[12]. Hsu, David H, 2004, What do entrepreneurs pay for venture capital affiliation?, Journal of Finance 59, 1805–1844.

[13]. Glaeser EL, Laibson D, Sacerdote B. 2002. An Economic Approach to Social Capital. The

[14]. Economic Journal 112(483):F437-F458.

Cite this article

Zhao,Y. (2023). A Study on the Factors Affecting Investment Decision of Venture Capitalist. Advances in Economics, Management and Political Sciences,14,140-146.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 2nd International Conference on Business and Policy Studies

ISBN：978-1-915371-71-3(Print) / 978-1-915371-72-0(Online)
Editor：Canh Thien Dang, Javier Cifuentes-Faura
Conference website: https://2023.confbps.org/
Conference date: 26 February 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.14
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. Phalippou, Ludovic, The Hazards of Using IRR to Measure Performance: The Case of Private Equity. Available at SSRN: https://ssrn.com/abstract=1111796 or http://dx.doi.org/10.2139/ssrn.1111796.

[2]. Gompers, Paul A. and Gornall, Will and Kaplan, Steven Neil and Strebulaev, Ilya A., How Do Venture Capitalists Make Decisions? (August 1, 2016). Stanford University Graduate School of Business Research Paper No. 16-33, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 477/2016, Available at SSRN: https://ssrn.com/abstract=2801385 or http://dx.doi.org/10.2139/ssrn.2801385.

[3]. Gompers, Paul (1995),“Optimal Investment, Monitoring, and the Staging of Venture Capital,” Journal of Finance, Vol. L, No.5.

[4]. Lerner, Josh(1995),“The European Association of Security Dealers: November 194,”Harvard Business School Case Study.

[5]. Gilson, Ronald J. and Black, Bernard S., Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets (November 1997). Journal of Financial Economics, Vol. 47, pp. 243-277, 1998, Available at SSRN: https://ssrn.com/abstract=46909 or http://dx.doi.org/10.2139/ssrn.46909.

[6]. Kaplan, S.N., Stromberg, P.,(2000),“How Do Venture Capitalists Choose Investments?”, white paper, August.

[7]. Rajan, Raghuram G. and Zingales, Luigi, The Influence of the Financial Revolution on the Nature of Firms (February 2001). CRSP Working Paper No. 525, Available at SSRN: https://ssrn.com/abstract=259537 or http://dx.doi.org/10.2139/ssrn.259537.

[8]. Birley S, Westhead P. 1993. A Comparison of New Businesses Established by 'Novice' and 'Habitual' Founders in Great Britain. International Small Business Journal 12(1):38-60.

[9]. Shane S, Stuart T. 2002. Organizational Endowments and the Performance of University Start Ups. Management Science 48(1):154-170.

[10]. Delmar F, Shane S. 2006. Does experience matter? The effect of founding team experience on the survival and sales of newly founded ventures. Strategic Organization 4(3):215-247.

[11]. Sahlman WA. 1990. The structure and governance of venture-capital organizations. Journal of Financial Economics 27(2):473-521.

[12]. Hsu, David H, 2004, What do entrepreneurs pay for venture capital affiliation?, Journal of Finance 59, 1805–1844.

[13]. Glaeser EL, Laibson D, Sacerdote B. 2002. An Economic Approach to Social Capital. The

[14]. Economic Journal 112(483):F437-F458.

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