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Which venture capital selection criteria distinguish high-flyer investments?

Author

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  • Jan-Georg Streletzki
  • Reinhard Schulte

Abstract

This study is based on an analysis of 64 ventures that were funded by German Venture Capital (VC) firms in order to identify VC selection criteria that distinguish non-high-flyer exits from high-flyer exits (exits that returned more than five times the VC's first-round money invested). Based on highly sensitive data, which are the venture's first-round business plan and the VC's return rate of the particular venture at exit, three high-flyer predictors were identified: company, product and market related. Logistic regression and discrimination analysis revealed that ventures with the following characteristics have the best chance of generating a VC high-flyer exit: targeting the business-to-customers market, being location in a metropolitan cluster and close to the lead investor, raising VC financed prior to the proof of concept level and having strategic partners raising the first round of VC investment. Ventures that have spun out from corporate institutions perform below average in terms of VC exit performance.

Suggested Citation

  • Jan-Georg Streletzki & Reinhard Schulte, 2013. "Which venture capital selection criteria distinguish high-flyer investments?," Venture Capital, Taylor & Francis Journals, vol. 15(1), pages 29-52, January.
    • Handle: RePEc:taf:veecee:v:15:y:2013:i:1:p:29-52
    DOI: 10.1080/13691066.2012.724232
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    References listed on IDEAS

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    1. Sophie Manigart & Katleen Baeyens & Wim Van Hyfte, 2002. "The survival of venture capital backed companies," Venture Capital, Taylor & Francis Journals, vol. 4(2), pages 103-124, April.
    2. Manigart, S. & Bruining, J. & Lockett, A. & Meuleman, M., 2002. "Why Do European Venture Capital Companies Syndicate?," ERIM Report Series Research in Management ERS-2002-98-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    3. Dean A. Shepherd, 1999. "Venture Capitalists' Assessment of New Venture Survival," Management Science, INFORMS, vol. 45(5), pages 621-632, May.
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    2. Christian Hackober & Carolin Bock, 2021. "Which investors’ characteristics are beneficial for initial coin offerings? Evidence from blockchain technology-based firms," Journal of Business Economics, Springer, vol. 91(8), pages 1085-1124, October.
    3. Santautė Venslavienė & Jelena Stankevičienė & Agnė Vaiciukevičiūtė, 2021. "Assessment of Successful Drivers of Crowdfunding Projects Based on Visual Analogue Scale Matrix for Criteria Weighting Method," Mathematics, MDPI, vol. 9(14), pages 1-18, July.

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