When entrepreneurs choose VCs: Experience, choice criteria and introspection accuracy

Dave Valliere and Rein Peterson

Venture Capital, 2007, vol. 9, issue 4, 285-309

Abstract: This study examines the criteria by which entrepreneurs choose their venture capital investors, using data from 59 entrepreneurs evaluating the relative importance of seven selection criteria. We divided our sample into three approximately equal subsamples, according to the degree of previous venture capital experience of the entrepreneur. These data suggests that novice entrepreneurs value the seven criteria differently from more experienced entrepreneurs, and in practice value these criteria differently from what they espouse. All groups of entrepreneurs consider valuation to be the primary criterion, and also view the terms and conditions of the investment deal as important. But as entrepreneurs gain experience they increasingly value the personal compatibility of the VC as important in their selection. Other differences between inexperienced and experienced entrepreneurs are reported for secondary selection criteria. These results recommend caution in the use of espoused data for future empirical research in this area, and suggest practical negotiating strategies for participants in this market.

Date: 2007
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Citations: View citations in EconPapers (7)

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DOI: 10.1080/13691060701605413

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