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Factors influencing venture capitalists' project financing decisions in South Africa

Author

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  • Van Deventer, Bart
  • Mlambo, Chipo

Abstract

This study explores and identifies the investment criteria used by South African venture capitalists in their venture screening and evaluation processes. Using a Likert scale type of questionnaire, South African venture capitalists (VCs)were asked to rate the investment criteria identified in similar studies abroad and to report any additional criteria of their own. By evaluating the mean ratings, it was found that South African VCs consider the entrepreneur’s honesty and integrity; a good expected market acceptance; and a high internal rate of return (IRR), to be the three most important criteria. The South African VCs, just like their overseas counterparts, regard management considerations to be the most important criteria group in the evaluation of new investment projects. The results of this study are deemed useful to both venture capitalists in their decision-making process and to entrepreneurs in their venture capital applications to maximise their success rate.

Suggested Citation

  • Van Deventer, Bart & Mlambo, Chipo, 2008. "Factors influencing venture capitalists' project financing decisions in South Africa," MPRA Paper 24970, University Library of Munich, Germany, revised 28 Feb 2009.
  • Handle: RePEc:pra:mprapa:24970
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    File URL: https://mpra.ub.uni-muenchen.de/24970/1/MPRA_paper_24970.pdf
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    References listed on IDEAS

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    1. Macmillan, Ian C. & Zemann, Lauriann & Subbanarasimha, P. N., 1987. "Criteria distinguishing successful from unsuccessful ventures in the venture screening process," Journal of Business Venturing, Elsevier, vol. 2(2), pages 123-137.
    2. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
    3. Ge, Dingkun & Mahoney, James M. & Mahoney, Joseph T., 2005. "New Venture Valuation by Venture Capitalists: An Integrative Approach," Working Papers 05-0124, University of Illinois at Urbana-Champaign, College of Business.
    4. Dixon, R, 1991. "Venture capitalists and the appraisal of investments," Omega, Elsevier, vol. 19(5), pages 333-344.
    5. Chan, Yuk-Shee & Siegel, Daniel R & Thakor, Anjan V, 1990. "Learning, Corporate Control and Performance Requirements in Venture Capital Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 365-381, May.
    6. Dean A. Shepherd, 1999. "Venture Capitalists' Assessment of New Venture Survival," Management Science, INFORMS, vol. 45(5), pages 621-632, May.
    7. Christopher B. Barry, 1994. "New Directions in Research on Venture Capital Finance," Financial Management, Financial Management Association, vol. 23(3), Fall.
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    Cited by:

    1. Jones, Morgan & Mlambo, Chipo, 2009. "Early-stage venture capital in South Africa: Challenges and prospects," MPRA Paper 42890, University Library of Munich, Germany, revised 21 Nov 2012.
    2. Portmann, David & Mlambo, Chipo, 2010. "Private equity and venture capital in South Africa: A comparison of project financing decisions," MPRA Paper 42892, University Library of Munich, Germany, revised 16 Nov 2012.

    More about this item

    Keywords

    South Africa; venture capital; investment criteria; entrepreneur;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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