- Handbooks in Venture Capital series
Edited by Hans Landström
Chapter 6: The Pre-investment Process: Venture Capitalists’ Decision Policies
6 The pre-investment process: Venture capitalists’ decision policies Andrew Zacharakis and Dean A. Shepherd Introduction The venture capital process can be thought of as a series of activities or stages that each new venture works through from the time the venture is ﬁrst proposed up until the time when the venture capital ﬁrm successfully exits from the venture and takes its proﬁt. For example, Tyebjee and Bruno (1984) proposed a model of the venture capital process with ﬁve such stages: (1) deal origination – seeking potential investments; (2) deal screening – quick review of business plans and/or oral proposals, both solicited and unsolicited; (3) deal evaluation – for those deals that pass the screen, more in-depth due diligence to validate business model and prospects; (4) deal structuring – establishing and negotiating the terms of the investments; and (5) post-investment – value-added activities such as serving on the board, assisting with follow-on investment and liquidity events. Preinvestment activities refer to all venture capital tasks up to and including the signing of an investment contract: soliciting new venture proposals for submission to the venture capital ﬁrm, determining whether these proposals meet the ﬁrm’s broad screening criteria, conducting due diligence (more extensive research to determine the likely success of the venture), and then negotiating and structuring a relationship with the entrepreneur. In this chapter we focus on the screening phase of the pre-investment process – speciﬁcally, what decision criteria are important to the investment decision and how this decision process works – while post-investment activities will be discussed...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.