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Private equity and venture capitalists' investment criteria in the Czech Republic
[Výzkum kritérií hodnocení podnikatelských projektů ze strany společností investujících Private Equity a Venture kapitál v ČR]

Author

Listed:
  • Marek Zinecker

    (Ústav financí, Fakulta podnikatelská, Vysoké učení technické v Brně, Kolejní 4, 612 00 Brno, Česká republika)

  • Jaroslava Rajchlová

    (Ústav financí, Fakulta podnikatelská, Vysoké učení technické v Brně, Kolejní 4, 612 00 Brno, Česká republika)

Abstract

For investment decision making to be rational, the existence of investment criteria is required. In the theory of financial management, the effectiveness of investment is traditionally judged by the degree to which an investment proposal contributes to achieving the main financial goal of business, i.e. market value maximization of the firm.So far, potential businesses for Private Equity and Venture Capital financing in the Czech Republic have not had information regarding investment criteria and their significance, when considered by investors, at their disposal, which is due to absence of relevant research results.This article presents results of the research project whose aim is to establish which criteria are considered to perform an essential role in the selection of business proposals by firms investing Private Equity and Venture Capital in the Czech Republic as well as the most common reasons for rejecting the proposals. Based on practical experience of financing by Private Equity and Venture Capital, the research made it possible to identify the most significant criteria, namely characterization of management, market, product and the rate of investment capital appreciation. The results of the research are consequently compared with findings which were published in similar studies undertaken in the past (e.g. Tyebjee, Bruno, 1984; Fried, Hisrich, 1994; MacMillan et al., 1985, 1987; Muzyka et al., 1996; Eisele, 2002).The research supports the thesis that, when considering business proposals, above-average weight is attached to criteria concerning the characterization of management, i.e. experience and competencies in all stages of business life cycle. Nevertheless, the fulfilment of the criteria is not sufficient for investors to evaluate a business proposal positively. They also place an emphasis on selected criteria related to market and product. By publishing empirical data, an important signal regarding up-to-date evaluative criteria and their weight is sent to those interested in financing by means of Private Equity/Venture Capital as well as investors in Private Equity and Venture Capital funds and to investment companies.

Suggested Citation

  • Marek Zinecker & Jaroslava Rajchlová, 2010. "Private equity and venture capitalists' investment criteria in the Czech Republic [Výzkum kritérií hodnocení podnikatelských projektů ze strany společností investujících Private Equity a Venture ka," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 58(6), pages 641-652.
    • Handle: RePEc:mup:actaun:actaun_2010058060641
    DOI: 10.11118/actaun201058060641
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    References listed on IDEAS

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    1. Macmillan, Ian C. & Siegel, Robin & Narasimha, P. N. Subba, 1985. "Criteria used by venture capitalists to evaluate new venture proposals," Journal of Business Venturing, Elsevier, vol. 1(1), pages 119-128.
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    3. Zacharakis, Andrew L. & Meyer, G. Dale, 1998. "A lack of insight: do venture capitalists really understand their own decision process?," Journal of Business Venturing, Elsevier, vol. 13(1), pages 57-76, January.
    4. Dean A. Shepherd, 1999. "Venture Capitalists' Assessment of New Venture Survival," Management Science, INFORMS, vol. 45(5), pages 621-632, May.
    5. Robinson, Richard Jr., 1987. "Emerging strategies in the venture capital industry," Journal of Business Venturing, Elsevier, vol. 2(1), pages 53-77.
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