Critical evaluate "Criteria used by venture capitalists to evaluate new venture proposals" in Journal of Business Venturing

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 Critical evaluate “Criteria used by venture capitalists to evaluate new venture proposals” in Journal of Business Venturing

Introduction

The new venture is “an enterprise of a business nature in which there is considerable risk of loss as well as chance of gain” (Oxford English Dictionary, 1989, Vol. XIX, p. 520). The word ‘venture’ literally means ‘a risky undertaking’, which makes venture capitalists’ risk-takers. However, like all other types of investors, venture capitalists will only invest if perceived returns are greater than perceived risk. The saying, ‘greater the risk, greater the return’ holds for venture capital financing provided it is not a speculative deal. Therefore, it is necessary to identify and quantify the probability of risk. The study by MacMillan, Siegel, and Narasimha have been undertaken to determine which criteria are important for evaluate new venture proposals. Some criteria have been point out by the Journal as the common criteria. This article is going to have a review on those criteria provide by MacMillan, Siegel, and Narasimaha and have a critical analysis whether those criteria provided could make the venture proposals successful.

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Summaries of the journal

According to the study, the most important criteria is “the quality of the entrepreneur that ultimately determines the funding decision.”

In the first part of the study, 24 criteria were scaled under 5 catalogs and use a survey method to examine the importance of them. The results of the study have found out that personality and experience, product and market characteristics and financial consideration are the most important criteria for venture capitalists to qualify the proposals. For personality and experience, the most important personality characteristics are evidence of staying power and an ability to ...

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