Overview of Seminal Literature

Discussed herein in brief, are the key bodies of knowledge, theory and theorists related to entrepreneurship. The greatest difficulty in the world is not for people to accept new ideas, but to make them forget about the old ideas. Studies have shown that the general patterns underlying venture capitalists’ investment philosophies are potentially different from the way venture capitalists themselves categorize their priorities (Tyebjee and Bruno 1981; 1984; Macmillan, Siegal, and Narasimha 1985; MacMillan, Zemann, and Narasimha 1987).Other scholars however, argue that venture capitalists actual decision making could be at variance with the post hoc accounts provided in venture capitalist self reports.

Researchers have furthermore analyzed how venture capitalists worldwide use investment criteria. They have employed a variety of methods from a traditional aggregation of venture capitalists’ rankings of investment criteria, to a verbal protocol analysis, factor analysis, conjoint analysis and modeling.They have further sought to uncover how venture capitalists’ approaches toward venture funding differ by the stage of investment (Khanin 2006); investment philosophy, venture capitalist firm status (Roberts and Barley 2004), and whether VCs’ choice of investment criteria may affect their profitability (Kaplan and Stromberg 2006). It is clear however, that research on venture capitalists’ investment criteria has really grown and spun out in different directions (Kaplan and Stromberg 2006).This has been possible through employment of a variety of methods and has thus arrived at different conclusions, which could be classified as different or contradictory. In view of such increasing complexity, the objective focused herein is to articulate the principal questions that have long been posed in the seminal explorations of entrepreneurship.

Common Sets of Venture Criteria Investment CriteriaStudies have been conducted on VCs’ investment criteria in English – from unpublished dissertations (Baty 1964; Briskman 1966; Hoffman 1972; Wells 1974; Benoit 1975; Poindexter 1976; Hall 1989; Zacharakis 1995; Bachher 2000; Khanin 2006) to articles that came out between 1960 and 2006. To identify relevant dissertations and publications, an extensive search has been conducted in various databases, such as EBSCO, Lexis-Nexis, and ProQuest. The resulting sample consists of 52 studies on VCs’ investment criteria.It solely encompasses research based on an original dataset.

Based on the reviewed studies, ten most commonly used sets of investment criteria have been isolated and they include: CEO (entrepreneur); Top Management Team (TMT); Market; Market Growth; Product; Risk; Return; Exit; Deal; Strategy (Business Model); and Competition. While identifying and comparing VCs’ preferences in applying a number of common investment criteria, the following were the outcomes by Khanin D et al.In order of importance, CEO reflected the lead, followed by TMT, market, product, risk, returns, exit, deal, strategy and competition respectively (Kaplan & Stromberg 2006). Many studies discovered that VCs are concerned about the ability of senior management to act as leaders and be recognized as leaders by their team members (Robinson 1987; Kaplan and Stromberg 2000). Research has shown that in evaluating prospective investments VCs dissect overall risk into various subtypes they may need to handle in the process of funding a venture.

Driscoll (1974) first suggested that the gist of VC investment lies in risk management. Entrepreneur There are various objective features of an entrepreneur which include economic commitments functional background, education, knowledge in industries and recording of track (Poindexter 1975, Robinson 1987, Requelme and Watson 2002). There are also subjective characteristics of An entrepreneur which include, the commitment of an entrepreneur (Wells 1974), the ability of an entrepreneur to exert efforts which are sustained and also his detail attention (MacMillan et al. 985, 1987).There is also the desire of an entrepreneur to desire for success, elasticity, resourcefulness and also creativity (Khan 1987). There are different skills which are highlighted and are functional according to the VCs.

They include the general management of an entrepreneur, advertising, finance and also industrialization of an entrepreneur. Also there are competence and also management proficiency of an entrepreneur (Fried and Hisrich 1994).Also according to the conducted research, there was an indication that the VCs typically refer selection of seasoned managers (Robinson 1987, Knight 1994) who are believed to be having high tolerance risks (Wells 1974, Kumar 2003). TMT During the research, many revisions found out that, the VCs are more concerned about the aptitude of the higher-ranking management to act like leaders and get recognition as the leaders by their members of the team (Robinson 1987, Kaplan and Stromberg 2000). There is a careful evaluation of the quality of a management of the team.

Generally, the VCs have a preference when there is balance in a management team meaning that the team has to be made up of different backgrounds and capacities which are functional ( Muzyka et ai. 1996, Bachher 2000). According to an exclusive focus on the characteristics of the start up team which focused on the experience of an entrepreneur on a pertinent industry, the availability of the education field of an entrepreneur, the experience of leadership in an entrepreneur, the entrepreneurs’ degree of university, his mutual association, how old the entrepreneur is together with his preceding experience.There is also a strong importance that such kinds of teams characteristic exert on the evaluation of the VCs. Market According to the research concluded there was a discovery that the VCs give a principle concern on whether the market on target by business enterprise is available (Tyebjee and Bruno 1984). There is also a concern whether there is satisfaction from the venture to the existing need of the market.

This also gives stimulation to the new requirement which may give a lead to the creation of the new bazaars (MacMillan et al. 985, 1987).Also ca concern whether the present market or the scheduled market will be adequately large so that there is a chance for the business enterprise in the expansion and generation of an adequate flow of cash which can give justification to the VC investment. Market Growth According to an entrepreneur is a big emphasize from a number of VCs, that a primary decisive factor is whether there is fast growth in the market which is enough to necessitate an investment (Muzyka et al.

996). On top of that there is a demonstration from (Shepherd 1999a and Shepherd et al. 2000) that VCs opt for a certain level of stability in a bazaar since there maybe complexity in enjoyment of the aggressive advantage in the transforming market. Hence there is a tendency of the VCs on the stability of the key factor of success, questioning whether there is a necessity of the requirements in the achievement of success in the market place due to its rapid or slow change. ProductAccording to the entrepreneur, VCs give a careful evaluation on the quality of the undertaking products by the use of different criteria which concentrates on the uniqueness of the product or gives a sufficient difference in comparison to the offerings of the competitors (Muzyka et al. 1996).

Also the proprietary of the product should be put to consideration (Macmillan et al. 985, 1987, Zacharakis and Meyer 1998). There is also a concern on the existence of the functioning sample of a product (Macmillan et al. 1985, 1987).

An entrepreneur also shows concern on the product if it will allow a venture to obtain competitive benefits due to its apparent dominance over the products and services of the competitors (Fried and Hisrich 1994, Zacharakis and Meyer 1998). Danger According to the entrepreneur, the evaluation of potential investments, the VCs divide the general risks into dissimilar subtypes which may need to hold on to in the funding process of the business enterprise. There was a suggestion from (Driscoll, 1974) that the general idea of the investment of the VC lies in the management of the risks.Therefore due to this approach, there is an analyzing of the patterns which lie beneath the application criteria of the VCs investment in terms of handling basic types of risks.

By the use of the analyzing factor, five indispensable types of risks were given an examination by VCs. The risks involved, risk accomplishment, management of the risk, speculation of the risk, financial guaranteeing out of the risk and also the competition of the risk (MacMillan et al. 1985, 1987). ProceedsAccording to the conducted studies, there is an indication of extreme concern about whether there are returns from the assets in the undertaking, will give a sufficient justification to the funding of the venture (Poinexter 1975). There was a indication that VCs never have any trust for entrepreneurs since they are more positive protuberances in regard to the prospected returns and give more attention to the size of the market and the rate of growth and also if there is satisfaction from the product to the need of the present or emerging market (Macmillan et al.

997). Liquidity According to entrepreneurs, there is an exit of choices prior to their investment. (Tyebjee and Bruno 1984).Due to the limited lifespan of the VCs funds, there is a great concern from the VCs in the ability of liquidating their investment in a manner which is appropriate (Macmillan et al. 1985).

In regard to entrepreneurs, quality of the deal is a great VCs concern. Therefore there maybe keen undertaking which would invest on conditions which would give guarantee to equity at a price which is attractive. Poindexter 1975, Muzyka et al. 1996).

According to entrepreneurs, VCs give a separate analysis on the business enterprise strategy as crucial criteria on there investment.There was a careful evaluation on the venture policy (Robinson 1987, Muzyka et al. 1996) Competition A number of studies have established that VCs assess the extent of competitive threat in a sector before they decide to invest. MacMillan et al. 987 discovered that two underlying factors have been consistent predictors of VCs financing decisions; market acceptance of a new product and the degree of competitive threat.

Hisrich and Jankowicz, (1990), have found that VCs consider the odds that a venture would be able to hold off competition and whether competitors would be likely to immediately target a venture as soon as it enters the market sector.