Startup Observer.com
  • Home
  • Industries
  • Innovation
  • outsourcing
  • Business
  • Finance
  • Headlines
  • Opinion
  • News
Home Finance Venture capitalists can improve success by considering prior funding
Finance

Venture capitalists can improve success by considering prior funding

by uma July 21, 2022
July 21, 2022
gawdo

Investors benefit from considering prior funding sources when selecting entrepreneurial start-ups, reveals new research from Nyenrode Business University. This insight is also of societal importance as particularly entrepreneurial start-ups have proven to benefit society at large, in innovation and employment, even more so than established corporates.

Dr. Job Andreoli, Assistant Professor of Finance at Nyenrode, found that while practice and academia point to only two investment considerations (i.e. the entrepreneur and the venture, or ‘the jockey’ and ‘the horse’), a third consideration deserves attention too: prior funding sources.

Dr. Andreoli studied ventures early stage, actually before these ventures have a product or service to evaluate, and need funding to do so. This is when the information asymmetry between investor and entrepreneur is largest as is their mutual benefit. Despite this large information asymmetry, entrepreneurs and investors alike seek to close virtually irrevocable agreements.

Entrepreneurs and investors need one another to grow the venture, yet are typically perfect strangers with their own goals and priorities. Both thus need to find ways to bridge the unknowns and find common ground. While this challenge applies to all financing and investment decisions, it is particularly pronounced in early-stage ventures as they are riskier, resulting from their developing proposition, limited market proof and lack of collateral.

The investment selection appears to be the most important determinant for investment success, even more so than for instance the treatment effect (i.e. the coaching and networking activities after having selected the venture). Yet selecting the right ventures to invest in, is a challenge and good understanding of its determinants has been lacking in practice and in academia. Whether causal or not, persisting low rates of successful investments are apparent as well.

Both the practice and the science of investment selection rely on only two candidates to address the information challenge: the jockey and the horse. The jockey is the entrepreneur and their traits. Examples are entrepreneur level of education, work experience, whether they set-up a venture before, and so forth… Likewise, the horse is the venture and its traits. Examples may include the business model, competition, industry, and so forth… The literature thus recognizes the inability of investors and entrepreneurs to have the same level of information. It merely suggests two candidates for investors to assess potential and select investments.

Dr. Andreoli reveals that attention for prior funding sources enriches the art and science of investment selection, on top of the extant two categories. He does so by creating a ‘pecking order’ of new early-stage funding sources and by providing evidence of the value that crowdfunding has for VCs with a more social orientation. The research seems promising to improve funding success and create more societal wealth.

 

www.gawdo.com
Share on FacebookShare on TwitterShare on Linkedin
0 FacebookTwitterPinterestEmail
previous post
LEADING GLOBAL TRADE & INVESTMENT COMPANY, BACK 2 BUSINESS APPOINTS NEW CEO
next post
Webchats: Will Growth Continue in a Post-Pandemic World?  Janine Hunt, client partnership director at Kura.

You may also like

UK’s number one funeral plan provider authorised by...

August 2, 2022

Grayce invests £4m+ in new collaboration hubs and...

August 1, 2022

Most Australian lawyers and accountants are concerned about...

July 29, 2022
Editorial & Advertiser disclosureEditorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.
gawdo.com
https://www.gawdo.com
  • About us
  • Advertising & Terms of Use
  • Contact Us
  • Privacy Policy

@2021 - All Right Reserved.


Back To Top
Startup Observer.com
  • Home
  • Industries
  • Innovation
  • outsourcing
  • Business
  • Finance
  • Headlines
  • Opinion
  • News
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
Cookie SettingsAccept All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT