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

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  • Dave Valliere
  • Rein Peterson

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.

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  • Dave Valliere & Rein Peterson, 2007. "When entrepreneurs choose VCs: Experience, choice criteria and introspection accuracy," Venture Capital, Taylor & Francis Journals, vol. 9(4), pages 285-309, May.
    • Handle: RePEc:taf:veecee:v:9:y:2007:i:4:p:285-309
    DOI: 10.1080/13691060701605413
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    Cited by:

    1. Ritesh Shahi & Nadiya Parekh, 2022. "Financing Social Enterprises: An Upper Echelon Perspective," FIIB Business Review, , vol. 11(2), pages 235-250, June.
    2. Valliere, Dave, 2013. "Towards a schematic theory of entrepreneurial alertness," Journal of Business Venturing, Elsevier, vol. 28(3), pages 430-442.
    3. Welter, Chris & Holcomb, Tim R. & McIlwraith, John, 2023. "The inefficiencies of venture capital funding," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    4. Stefanie Weniger & Svenja Jarchow, 2023. "Between benefit and risk: how entrepreneurs evaluate corporate investors," Journal of Business Economics, Springer, vol. 93(5), pages 783-816, July.
    5. Andreas Köhn, 2018. "The determinants of startup valuation in the venture capital context: a systematic review and avenues for future research," Management Review Quarterly, Springer, vol. 68(1), pages 3-36, February.
    6. Drover, Will & Wood, Matthew S. & Fassin, Yves, 2014. "Take the money or run? Investors' ethical reputation and entrepreneurs' willingness to partner," Journal of Business Venturing, Elsevier, vol. 29(6), pages 723-740.

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