The non-monetary aspects in selecting venture capital investors

Abstract

Innovation, jobs, and economic prosperity are created by venture capital and startups on a continuous basis. The value they generate has an enormous impact on both the individual and societal level. Nevertheless, the decision-making behind these investment transactions is not always clear. The purpose of this thesis is to examine what non-monetary aspects startups consider when selecting venture capital (VC) investors. The study also sheds light on some of the analysis both the startup and the venture capital firm conduct before they decide, who they want to partner with. The theoretical base of this study is the resource-based view, and further, the dynamic capabilities framework. Davila and Foster (2007) find that having some formalized structure in early-stage firms can help them scale up and grow faster. This ties management control systems and accounting to the decision-making a startup has to carry out. The study is qualitative. Empirical evidence is gathered with interviews with the case company and one investor. The case company is a startup that is potentially looking to get more funding to accelerate growth. The interviews are reflected against the chosen theoretical frameworks and other literature. The key findings are that there is a plethora of resources that an early-stage venture can receive from the VC firm in addition to money, and that those resources and capabilities can influence decision-making. These capabilities can include knowledge in scaling and supporting growth, geographical location, VC involvement, networks and cultural fit. What is more, an international VC firm can offer their expertise in entering a new market or bring legitimacy to the venture (Devigne, Vanacker, Manigart, & Paeleman, 2013). Nevertheless, geographical distance may hinder co-operation between the startup and the VC firm, especially because it can also entail cultural and institutional distances between the two. If a venture wants high VC involvement, cultural fit and strong relationships between the two parties are key factors in the decision-making process.