Purpose Start-ups can take an integral role in both enhancing the people’s quality of life through responding to unmet needs or enhance the level of satisfaction from the solution as well as contributing to the regional economy of their host region. However, many start-ups end up failed regarding the uncertain nature of their business, and financial failure has been mentioned as one of the principal failure factors by both entrepreneurs and scholars. Design Having in mind that many start-ups require external financing to survive and grow, this study investigates the venture capitalists’ investment decision-making since VC funding is the most common financing method for start-ups during their scaling stage. The present study aims to develop venture capitalists’ decision-making framework for start-up selection and quantify the relative importance of each criterion. We used Multi-Criteria Decision-Making (MCDM) techniques to extract the decision criteria and the relative influence of each criterion in the final decision. Also, a case study has been presented, which validates the veracity of the derived framework. Findings The results would help entrepreneurs to grasp a comprehensive understanding of VCs’ decision-making and enables them to optimize their businesses’ design and resource allocation. The present study would also enable both investors and investees to improve their performance. For entrepreneurs, this study provides them insight into VCs’ decision-making. The findings of this study provide valuable insights for managers looking to secure investment for their start-up. This is the first study that utilizes quantitative decision-making framework for venture capitalists. The most critical determinants of successful fundraising are identified as “prior knowledge on start-ups” followed by “team experience” and “balance team”. Originality This research integrated “business”, “market”, “financial”, “team” and “management & operations” criteria which is unique in context of Venture Capital. Illustrating the decision criteria and the relative criteria weight, the present study enables entrepreneurs to optimize their resource allocation priorities and increase their odds of successful fundraising by focusing on the improvement in relatively more important aspects of their business. This study would also enable investors to assess their decision-making process and enhance their performance in detecting promising investment opportunities by retrospectively analyzing their failures, detecting the failure factors, and developing an objective decision-making framework.

Venture capital dilemma: which start-up to invest in?

期刊论文
发表日期：

2025年4月29日

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Jalil Heidary Dahooie,
Navid Mohammadi,
Mahak Sharma,
Tugrul Daim

摘要

Purpose

Start-ups can take an integral role in both enhancing the people’s quality of life through responding to unmet needs or enhance the level of satisfaction from the solution as well as contributing to the regional economy of their host region. However, many start-ups end up failed regarding the uncertain nature of their business, and financial failure has been mentioned as one of the principal failure factors by both entrepreneurs and scholars.

Design

Having in mind that many start-ups require external financing to survive and grow, this study investigates the venture capitalists’ investment decision-making since VC funding is the most common financing method for start-ups during their scaling stage. The present study aims to develop venture capitalists’ decision-making framework for start-up selection and quantify the relative importance of each criterion. We used Multi-Criteria Decision-Making (MCDM) techniques to extract the decision criteria and the relative influence of each criterion in the final decision. Also, a case study has been presented, which validates the veracity of the derived framework.

Findings

The results would help entrepreneurs to grasp a comprehensive understanding of VCs’ decision-making and enables them to optimize their businesses’ design and resource allocation. The present study would also enable both investors and investees to improve their performance. For entrepreneurs, this study provides them insight into VCs’ decision-making. The findings of this study provide valuable insights for managers looking to secure investment for their start-up. This is the first study that utilizes quantitative decision-making framework for venture capitalists. The most critical determinants of successful fundraising are identified as “prior knowledge on start-ups” followed by “team experience” and “balance team”.

Originality

This research integrated “business”, “market”, “financial”, “team” and “management & operations” criteria which is unique in context of Venture Capital. Illustrating the decision criteria and the relative criteria weight, the present study enables entrepreneurs to optimize their resource allocation priorities and increase their odds of successful fundraising by focusing on the improvement in relatively more important aspects of their business. This study would also enable investors to assess their decision-making process and enhance their performance in detecting promising investment opportunities by retrospectively analyzing their failures, detecting the failure factors, and developing an objective decision-making framework.