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Does startup experience matter? Venture capital selection criteria among Israeli entrepreneurs

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  • Yakir Falik
  • Tom Lahti
  • Henrik Keinonen

Abstract

In this study we are concerned with understanding Israeli entrepreneurs’ selection criteria in choosing a venture capital (VC) firm. Our primary aim was to investigate how startup experience impacts entrepreneurs’ trade-offs between resource-related criteria and criteria related to the conditions of the deal. Hypotheses are drawn from agency theory, the resource dependence perspective and extant VC research. Data is gleaned from interviews with 144 Israeli entrepreneurs that are either in the process of acquiring VC or have recent experience of raising it. Hypotheses are tested with ordinal logit models. Results demonstrate that there is a negative relationship between startup experience and the importance entrepreneurs attach to valuation, and that the importance attached to a VC firm’s network and reputation moderates this relationship. In addition, the importance attached to a VC firm’s network moderates the relationship between startup experience and the importance assigned to contractual terms. Furthermore, results indicate that while inexperienced entrepreneurs attach more importance to valuation than experienced ones, they tend to emphasize it less when they seek to gain access to a VC firm’s network of contacts. Entrepreneurs are shown to be more concerned about valuation when they approach less reputable VC firms, particularly if the entrepreneur has substantial startup experience.

Suggested Citation

  • Yakir Falik & Tom Lahti & Henrik Keinonen, 2016. "Does startup experience matter? Venture capital selection criteria among Israeli entrepreneurs," Venture Capital, Taylor & Francis Journals, vol. 18(2), pages 149-174, April.
    • Handle: RePEc:taf:veecee:v:18:y:2016:i:2:p:149-174
    DOI: 10.1080/13691066.2016.1164109
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    Cited by:

    1. Simone Aresu & Luigi Rombi & Andrea Cardia, 2019. "Management accounting systems in venture capital-backed start-up companies," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2019(3), pages 35-58.
    2. William Aparecido Maciel da Silva & Michele Nascimento Jucá, 2023. "Determinants of Startup´s Value According to Venture Capitalists," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 96-118.
    3. Hendri Hendri & Yuliantoro Yuliantoro & Maksimilianus Kolot Ama, 2020. "Determinats of Fraud Prevention and Financial Performance as an Intervening Variable," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 19-26.
    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.

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