Venture Capital in Spain by Stage of Development

Abstract

This paper examines the investment decisions of 51 Spanish venture capital firms by stage of development. The results showed that venture capitalists ranked evaluation criteria related to the characteristics of the entrepreneurs, manager background, and management team experience as more important than market and product characteristics. Factors affecting the required rate of return were more important for the early-stage firms than for late-stage firms. Discounted cash flow analysis is the most frequently used valuation method. Private venture capital firms invest more during late development stages, while public venture capital firms invest more during the early stages. The results can be used by firms seeking venture capital, venture capital firms, consultants, and support agencies that provide capital-acquisition assistance. By gaining insight into decision criteria and processes, firms can develop better and more targeted materials to attract capital. Venture capital firms can use the information from this study to better understand their decision processes, individually and relative to competitors. Consultants and support agencies can use the information to provide better advice to both firms and venture capital firms. Information is this study could easily be built into training programs for both new and existing businesses. Finally, the results can also be incorporated directly into university courses that include material related to venture capital.

Venture Capital Deals: Beliefs and Ownership

“…Table V sums up our sensitivity analysis on whether or not the decision to revise is more likely to happen based on how a change in a key model parameter affects the two critical thresholds. This decision rule complements existing literature [10], [17], [18] by emphasizing the role played by the VC's service to be delivered to the newly proposed investment opportunity in determining that opportunity's expected revenue and the resulting valuation.…”

“…Although the commercial potential of an investment opportunity-e.g., based on the technology or the marketability of the new offering-is important [15], [16], VCs consider the entrepreneur to be the most important factors that affect firm valuation [10], [17]. Hsu found that prior founding experience, founders' ability to recruit executives through one's own social network, and founding teams with a doctoral degree holder were competences of entrepreneurial teams that received higher valuation for their proposed investment opportunities [11].…”

Classification and Analysis of Criteria Used in the Due Diligence Process

“…Venture capital companies face higher adverse selection problems when they fund businesses in early stage of development because the firm is not consolidated and there is not verifiable and testable information about it (Ramón et al, 2007;Ferrary, 2010). As a consequence, venture capitalists evaluating projects in early stage of development are expected to be more demanding in the application of the investment criteria.…”

The capital gap for small technology companies: public venture capital to the rescue?

“…Although several empirical analyses have studied venture-capital investment in Spain (e.g. Pintado et al 2007;Alemany 2006;Alemany and Marti 2006), none of them have specifically examined early-stage and high-technology opportunities, nor have they assessed the effectiveness of public intervention for promoting technology entrepreneurship in Spain. By studying the evolution of venturecapital investments before and after government's intervention in Spain, we attempt to address some of the unclear questions retative to the effectiveness of public intervention in highly uncertain environments.…”

“…The amount of venture capital invested between 2000 and 2003 as a percentage of GDP in Spain was also slightly lower than the European average. Although the Spanish venture-capital market is emerging, and early-stage and high-technology opportunities are attracting more and more private capital (Pintado et al 2007), entrepreneurial processes have still not been standardised, and venture-capital investments require much effort from entrepreneurs and entail high risk for investors.…”