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Venture capitalists' selection process: the case of biotechnology proposals

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Author Info

  • Baeyens, K.
  • Vanacker, T.
  • Manigart, M.

    ()
    (Vlerick Leuven Gent Management School)

Abstract

The paper analyses venture capitalists’ selection process in biotechnology ventures. Biotech ventures operate in an extremely risky environment making this an interesting research setting. The majority of venture capitalists exclude certain biotech sectors ex-ante because of regulatory uncertainty, the long development process to a market ready product and the difficulty to understand the technology. The more thorough due diligence process focusses on financial, market and technology criteria. Management team capabilities are more important for later stage investors, whereas early stage investors expect to have an impact on the future recruiting of professional managers. Despite the higher risk of biotech investments, we find no evidence that VCs require higher hurdle rates or more complete contracts for these investments, compared to investments in other technology-based companies. The most important reason for not reaching an investment agreement is disagreement over valuation, due to large differences in risk perception between entrepeneurs and venture capitalists and the lack of a standard valuation tool for biotech projects.

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Bibliographic Info

Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2005-17.

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Length: 28 pages
Date of creation: 05 Nov 2005
Date of revision:
Handle: RePEc:vlg:vlgwps:2005-17

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Keywords: venture capital; selection process; biotechnology;

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References

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  1. P. Everaert & G. Sarens, 2005. "Outsourcing bij Vlaamse Ondernemingen: een Exploratief Onderzoek," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/306, Ghent University, Faculty of Economics and Business Administration.
  2. S. CLAEYS & G. LANINE & K. SCHOORs, 2005. "Bank Supervision Russian Style: Rules vs Enforcement and Tacit Objectives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/307, Ghent University, Faculty of Economics and Business Administration.
  3. Claeys, Sophie & Lanine, Gleb & Schoors, Koen, 2005. "Bank supervision Russian style: Rules versus enforcement and tacit objectives," BOFIT Discussion Papers 10/2005, Bank of Finland, Institute for Economies in Transition.
  4. A. Heirman & B. Clarysse, 2005. "The imprinting effect of initial resources and market strategy on the early growth path of start-Ups," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/310, Ghent University, Faculty of Economics and Business Administration.
  5. S. Vandevoorde & M. Vanhoucke, 2005. "A Comparison of Different Project Duration Forecasting Methods using Earned Value Metrics," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/312, Ghent University, Faculty of Economics and Business Administration.
  6. A. Maes & G. Poels & F. Gailly & R. Paemeleire, 2005. "Measuring User Beliefs and Attitudes towards Conceptual Models: A Factor and Structural Equation Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/311, Ghent University, Faculty of Economics and Business Administration.
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Citations

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Cited by:
  1. H. Ooghe & C. Spaenjers & P. Vandermoere, 2005. "Business failure prediction: simple-intuitive models versus statistical models," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/338, Ghent University, Faculty of Economics and Business Administration.
  2. N. Geeroms & P. Van Kenhove & W. Verbeke, 2005. "Health Advertising to promote Fruit and Vegetable Intake: Application of need-related Health Audience Segmentation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/336, Ghent University, Faculty of Economics and Business Administration.
  3. M. Knockaert & T. Vanacker, 2011. "The Association between Venture Capitalists’ Selection and Value Adding Behavior: Evidence from Early Stage High Tech Venture Capitalists," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/741, Ghent University, Faculty of Economics and Business Administration.
  4. W. Buckinx & D. Van Den Poel, 2005. "Assessing and exploiting the profit function by modeling the net impact of targeted marketing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/330, Ghent University, Faculty of Economics and Business Administration.
  5. P. Windels & J. Christiaens, 2005. "Management Reform in Flemish Local Authorities: Testing the Institutional Framework," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/331, Ghent University, Faculty of Economics and Business Administration.
  6. Maarten Dossche & Gerdie Everaert, 2005. "Measuring inflation persistence: A structural time series approach," Money Macro and Finance (MMF) Research Group Conference 2005 85, Money Macro and Finance Research Group.
  7. Jan Lepoutre & Nikolay Dentchev & Aimé Heene, 2007. "Dealing With Uncertainties When Governing CSR Policies," Journal of Business Ethics, Springer, vol. 73(4), pages 391-408, July.
  8. A. Karas & K. Schoors, 2005. "Heracles or Sisyphus? Finding, cleaning and reconstructing a database of Russian banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/327, Ghent University, Faculty of Economics and Business Administration.
  9. M. Vanhoucke & B. Maenhout, 2005. "Characterisation and Generation of Nurse Scheduling Problem Instances," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/339, Ghent University, Faculty of Economics and Business Administration.
  10. B. Maenhout & M. Vanhoucke, 2005. "New Computational Results for the Nurse Scheduling Problem: A Scatter Search Algorithm," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/341, Ghent University, Faculty of Economics and Business Administration.
  11. E. Labro & M. Vanhoucke, 2005. "A simulation analysis of interactions between errors in costing system design," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/333, Ghent University, Faculty of Economics and Business Administration.
  12. L. Pozzi, 2005. "Income Uncertainty and Aggregate Consumption," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/334, Ghent University, Faculty of Economics and Business Administration.
  13. J. Albrecht & M. Neyt & T. Verbeke, 2005. "Bureaucratisation and the growth of health care expenditures in Europe," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/335, Ghent University, Faculty of Economics and Business Administration.
  14. W. Bruggeman & P. Everaert & S. R. Anderson & Y. Levant, 2005. "Modeling Logistics Costs using Time-Driven ABC: A Case in a Distribution Company," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/332, Ghent University, Faculty of Economics and Business Administration.

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