Entrepreneurial Finance in the Twenty-first Century, a Review of Factors Influencing Venture Capitalist’s Decision
By: Vazirani, Ashish
Contributor(s): Bhattacharjee, Titas
Material type:
TextPublisher: India Sage Publications September, 2021Description: 306-335pSubject(s): Venture capitalist | new venture | new venture investment | decision-making | qualitative factorsOnline resources: Click here to access online Summary: Investments in new ventures are risky due to lack of conventional form of quantitative information and untested products. Venture capitalists (VCs) are seen to target such new ventures for high-risk premium but with little success. Existing research has investigated and identified a variety of qualitative factors that impact VCs’ investment decisions; however, many research gaps still exist. Works published in the last two decades show the evolution in the preference of factors with the focus shifting from venture’s team and product to factors such as intellectual property rights, economic crisis and social capital. It was found that the factor’s role was limited to the binary scale (positive and negative), which undermines its effect. The purpose of this review is to provide a comprehensive framework of factors that influence VCs’ investment decisions and show theoretical research gaps. Accordingly, we have segmented factors into two macro-categories: ‘internal’ and ‘external environment’, and presented a detailed framework of the factors that influence VCs’ investment decisions. Further, we argue to consider the subjectivity of qualitative factors and to explore the role of a factor in the decision-making.
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Investments in new ventures are risky due to lack of conventional form of quantitative information and untested products. Venture capitalists (VCs) are seen to target such new ventures for high-risk premium but with little success. Existing research has investigated and identified a variety of qualitative factors that impact VCs’ investment decisions; however, many research gaps still exist. Works published in the last two decades show the evolution in the preference of factors with the focus shifting from venture’s team and product to factors such as intellectual property rights, economic crisis and social capital. It was found that the factor’s role was limited to the binary scale (positive and negative), which undermines its effect. The purpose of this review is to provide a comprehensive framework of factors that influence VCs’ investment decisions and show theoretical research gaps. Accordingly, we have segmented factors into two macro-categories: ‘internal’ and ‘external environment’, and presented a detailed framework of the factors that influence VCs’ investment decisions. Further, we argue to consider the subjectivity of qualitative factors and to explore the role of a factor in the decision-making.
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