Van Deventer, Bart and Mlambo, Chipo (2008): Factors influencing venture capitalists' project financing decisions in South Africa. Published in: South African Journal of Business Management , Vol. 40, No. 1 (30. March 2009): pp. 33-41.
Download (83Kb) | Preview
This study explores and identifies the investment criteria used by South African venture capitalists in their venture screening and evaluation processes. Using a Likert scale type of questionnaire, South African venture capitalists (VCs)were asked to rate the investment criteria identified in similar studies abroad and to report any additional criteria of their own. By evaluating the mean ratings, it was found that South African VCs consider the entrepreneur’s honesty and integrity; a good expected market acceptance; and a high internal rate of return (IRR), to be the three most important criteria. The South African VCs, just like their overseas counterparts, regard management considerations to be the most important criteria group in the evaluation of new investment projects. The results of this study are deemed useful to both venture capitalists in their decision-making process and to entrepreneurs in their venture capital applications to maximise their success rate.
|Item Type:||MPRA Paper|
|Original Title:||Factors influencing venture capitalists' project financing decisions in South Africa|
|Keywords:||South Africa; venture capital; investment criteria; entrepreneur|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
N - Economic History > N2 - Financial Markets and Institutions > N27 - Africa; Oceania
G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
|Depositing User:||C Mlambo|
|Date Deposited:||12. Oct 2010 19:28|
|Last Modified:||11. Feb 2013 19:04|
Amit, R., Glosten, L. & Muller, E. 1990. ‘Entrepreneurial ability, venture investments, and risk sharing’, Management Science, 38(10): 1232-1245.
Barry, C. 1994. ‘New directions in research on venture capital finance’, Financial Management, 23(3): 3-15.
Chan, Y-K., Siegel, D. & Thacker, A.V. 1990. ‘Learning, corporate control and performance requirements in venture capital contracts’, International Economic Review, 31(2): 365-382.
Cohen, S. 2006. ‘Exits set to increase worldwide as venture capital industry continues to globalise, says Ernst & Young’, Ernst & Young 2006 Press Releases, 31 May 2006. [online] URL: http://www.ey.com/global/content.nsf/South_Africa/31_Ma y_06_Exits_set_to_increase_worldwide. Accessed 27 September 2007.
Dixon, R. 1991. ‘Venture capitalists and the appraisal of investments’, OMEGA - The International Journal of Management Science, 19(5): 333-344.
Fried, V. & Hisrich, R. 1994. ‘Toward a model of venture capital investment decision making’, Financial Management, 23(3): 28–37.
Ge, D., Mahoney, J.M. & Mahoney J.T. 2005. New venture valuation by venture capitalists: An integrative approach. New York: Federal Reserve Bank of New York.
Gompers, P.A. 1995. ‘Optimal investment, monitoring, and the stages of venture capital’, Journal of Finance, 50: 1461-1489.
Gompers, P. & Lerner, J. 2000. The venture capital cycle. Cambridge: MIT Press.
Kakati, M. 2003. ‘Success criteria in high-tech new ventures’, Technovation, 23: 447–457.
Kaplan, S.N. & Strömberg, P. 2003. ‘Financial contracting theory meets the real world: an empirical analysis of venture capital contracts’, Review of Economic Studies, 70(243): 281-315
Larsson, J. & Roosvall, M. 2000. ‘Overruling uncertainty.’ International Management master’s thesis No 2000:5, Graduate Business School, Goteborg University.
Long, J. 2007. ‘”No risk, no reward”, advises HBD venture capital CEO Julia Long at USB talk’, University of Stellenbosch Business School media releases, 30 July 2007. [Online] URL: http://www.usb.ac.za/usb/discover/MediaReleases/MediaRel eases_30-07-2007_Eng.asp. Accessed 28 September 2007.
MacMillan, I.C., Siegel, R. & Subba Narasimha, P.N. 1985. ‘Criteria used by venture capitalists to evaluate new venture proposals’, Journal of Business Venturing, 1(1): 119-128.
MacMillan, I.C., Zemann, L. & Subba Narasimha, P.N. 1987. ‘Criteria distinguishing successful from unsuccessful ventures in the venture screening process’, Journal of Business Venturing, 2(2): 123-137.
Mishra, A. 2004. ‘Indian venture capitalists (VCs): Investment evaluation criteria’, ICFAI Journal of Applied Finance, 10(7): 71-93.
Pintado, T.R., De Lema, D.G.P. & Van Auken, H. 2007. ‘Venture capital in Spain by stage of development’, Journal of Small Business Management, 45(1): 68-88.
Poindexter, J.B. 1976. ‘The efficiency of financial markets: The venture capital case’. Unpublished doctoral thesis, New York University, New York.
Pries, F. 2001. ‘Distinguishing successful from unsuccessful venture capital investments in technology-based new ventures: How investment decision criteria relate to deal performance’. Unpublished master’s thesis, University of Waterloo, Ontario.
Quindlen, R. 2000. Confessions of a venture capitalist: Inside the high-stakes world of new venture financing. New York. NY: Warner Books.
SAVCA, 2007. Venture capital and private equity industry performance survey of South Africa covering the 2006 calendar year. Illovo, Johannesburg: SAVCA.
Sahlman, W.A. 1988. ‘Aspects of financial contracting in venture capital’, Journal of Applied Corporate Finance, Summer: 23-36.
Sandberg, W.R. & Hofer, C.W. 1987. ‘Improving new venture performance: The role of strategy, industry structure, and the entrepreneur’, Journal of Business Venturing, 2(1): 5–28.
Shane, S. & Cable, D. 2002. ‘Network ties, reputation, and the financing of new ventures’, Management Science, 48(3): 364-381.
Shepherd, D.A. 1999. ‘Venture capitalists' assessment of new venture survival’, Management Science, 45(5): 621- 632.
SouthAfrica.info. 2007. ‘US group in $3.5bn Edcon buyout’, 18 April 2007. [Online] URL: http://www.southafrica.info/doing_business/investment/edc on.htm. Accessed 27 September 2007.
Timmons, J. & Spinelli, S. 2004. New venture creation. 6th Edition. Boston: Irwin McGraw-Hill.
Tyebjee, T. & Bruno, A. 1984. ‘A model of venture capitalist investment activity’, Management Science, 30: 1051–1066.
Van Auken, H. 2001. ‘Financing small technology-based companies: The relationship between familiarity with capital and ability to price and negotiate investment’, Journal of Small Business Management, 30(3): 240–258.
Wells, W.A. 1974. ‘Venture capital decision making’. Unpublished doctoral dissertation, Carnegie Mellon University, Pittsburg.
Wright, M. & Robbie, K. 1998. ‘Venture capital and private equity: A review and synthesis’, Journal of Business Finance and Accounting, 25(5): 521-570.
Zider, B. 1998. ‘How venture capital works’, Harvard Business Review, Nov-Dec: 131-139.