Which criteria matter most in the evaluation of venture capital investments?

Abstract

Purpose

The purpose of this paper is to identify the importance assigned to the various criteria used by the Portuguese venture capitalists (VCs) to evaluate and select early stage venture capital (VC) projects.

Design/methodology/approach

The data were collected through a questionnaire answered by 20 Portuguese VCs. The authors use descriptive statistics techniques and non-parametric tests to identify the most valued criteria and test differences in the importance assigned to the criteria of several types of VCs and investments.

Findings

The study reveals that personality and experience of the entrepreneur and of the management team are the most valued groups of criteria. VCs with a majority of private share capital value more the personality of the entrepreneur and management team than the companies with a majority of public share capital. Additionally, the VCs that did not yet internationalize consider the personality of the entrepreneur and management team and the financial aspects, to be more important than the VCs that have already expanded abroad.

Originality/value

It provides evidence on the VCs behavior in a small VC market. Since most of the existing literature on this area refer to large VC markets, the present study is important to investigate whether the conclusions reached by the previous studies can be extended to a small VC market. Also, this study is a contribution to the literature on the internationalization of VCs and it is the first study that explores the impact of the VCs being internationalized on the value given to the various selection criteria of early stage VC projects.

Citation

Carlos Nunes, J., Gomes Santana Félix, E. and Pacheco Pires, C. (2014), "Which criteria matter most in the evaluation of venture capital investments?", Journal of Small Business and Enterprise Development, Vol. 21 No. 3, pp. 505-527. https://doi.org/10.1108/JSBED-10-2013-0165