Abstract:
Purpose – The purpose of this paper is to identify and rank critical factors influencing investment
decisions of venture capitalists.
Design/methodology/approach – To identify and prioritize factors affecting investment decisions
of venture capitalists, a two-phase methodology was adopted: in the first phase, critical factors influencing
venture capitalists’ investment decisions were identified using exploratory factor analysis; the second
phase entailed the use of a multi-criteria decision-making technique – analytical hierarchal process (AHP)
which involved assigning weights to, and prioritizing the identified criteria and sub-criteria.
Findings – Seven factors were found to significantly influence investment decisions of venture
capitalists: entrepreneur’s characteristics, product or services, market characteristics, management
skills, financial consideration, economic environment and institutional and regulatory environment.
Findings revealed that entrepreneur’s characteristics, financial consideration and product or services
were prime influencers of venture capitalists’ investment decisions.
Research limitations/implications – As for limitations, first, the study considers limited number
of factors influencing investment decisions of venture capitalists; there may be other influencers not
considered in this study. Second, the AHP methodology assumes that the various decision-making
criteria and sub-criteria are independent of each other; in real life, there may be inter-dependency
among criteria. Third, the hierarchal model has been tested in the Indian venture capital industry only,
and generalizability of results with respect to other industries is questionable.
Practical implications – The present study identifies and ranks seven factors found to significantly
influence investment decisions of venture capitalists. Venture capitalists could use this list of factors as
a guideline before making investment decisions, and if considering all factors is not possible, take into
account the factors given top rank so that they arrive at informed and intelligent decisions.
Originality/value – This study is the first to identify economic factors (economic environment and
institutional & regulatory environment) as influencers of venture capitalists’ investment decisions.
Further, no study in the past has attempted to rank or prioritize factors influencing venture capitalists’
investment decisions; this is the first attempt of the kind.
