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Venture capitalists’ selection process: the case of biotechnology proposals

  • K. BAEYENS
  • T. VANACKER

    ()

  • S. MANIGART

    ()

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 exante 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 focuses 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 entrepreneurs and venture capitalists and the lack of a standard valuation tool for biotech projects.

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File URL: http://wps-feb.ugent.be/Papers/wp_05_313.pdf
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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 05/313.

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Length: 27 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:rug:rugwps:05/313
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Web page: http://www.ugent.be/eb

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  1. Vandevoorde, S. & Vanhoucke, M., 2005. "A comparison of different project duration forecasting methods using earned value metrics," Vlerick Leuven Gent Management School Working Paper Series 2005-16, Vlerick Leuven Gent Management School.
  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. Sophie Claeys, & Gleb Lanine & Koen Schoors, 2005. "Bank Supervision Russian style: Rules versus Enforcement and Tacit Objectives," William Davidson Institute Working Papers Series wp778, William Davidson Institute at the University of Michigan.
  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. 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.
  6. 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.
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