Evaluation Criteria of Venture Capital Firms Investing on Indonesians’ SME

Innovation and creativity are recognized as main source of economic growth. Governments from developed and developing countries have placed these concerns as a strategic national issue. Thus, financing on innovative companies become more important. Venture Capital firms evaluate their investment project differently with banks. Innovation on product market and effort level of the entrepreneurs are some of main considerations in venture capital investment decision. This study discusses about the investment evaluation criteria employed by venture capital firms in deciding to invest on potential investee companies in Indonesia. Based on the literature study, there are 12 investment evaluation criteria which are commonly used by venture capital firms (VCFs) around the world. This study shows that VCFs in the US are stricter and more rigorous when it comes to investment criteria compared to their counterparts. VCFs in the US considered 10 out of the 12 criteria to be significant. Singapore comes second with 8 criteria, followed by Europe with 6 criteria, Canada with 5 criteria, and Asia Pacific region with only 4 criteria that they consider to be significant. This research is conducted with comprehensive observation of VCFs in Indonesia and in-depth interview. Based on this study, VCFs investing in Indonesia consider 8 criteria to be significant, which is further confirmed by the in-depth interview with some venture capitalists.

[1]  Russell M. Knight,et al.  Criteria Used by Venture Capitalists: A Cross Cultural Analysis , 1994 .

[2]  Ahmad Rifa’i.  PERAN UMKM DALAM PEMBANGUNAN DAERAH: FAKTA DI PROVINSI LAMPUNG , 2013 .

[3]  John W. Creswell,et al.  Designing and Conducting Mixed Methods Research , 2006 .

[4]  Donald R Cooper,et al.  Metode penelitian bisnis , 2003 .

[5]  Vance H. Fried,et al.  An Entrepreneur's Guide to the Venture Capital Galaxy , 2006 .

[6]  W. A. Sahlman,et al.  The structure and governance of venture-capital organizations , 1990 .

[7]  Joachim Henkel,et al.  What you are is what you like—similarity biases in venture capitalists' evaluations of start-up teams , 2006 .

[8]  Ian C. MacMillan,et al.  Criteria Used by Venture Capitalists to Evaluate New Venture Proposals , 1985 .

[9]  Tyzoon T. Tyebjee,et al.  A Model of Venture Capitalist Investment Activity , 1984 .

[10]  D. Storey.  Understanding the small business sector , 1994 .

[11]  Hamfri Djajadikerta.  MENGANGKAT USAHA KECIL DENGAN MODAL VENTURA , 1997 .

[12]  Charles W. Hofer,et al.  Venture capitalists' decision criteria in new venture evaluation , 1993 .

[13]  David M. Flynn.  The critical relationship between venture capitalists and entrepreneurs: Planning, decision-making, and control , 1991 .

[14]  R. Dixon,et al.  Venture capitalists and the appraisal of investments , 1991 .

[15]  Andreas Kuckertz,et al.  Evaluation Uncertainty of Venture Capitalists’ Investment Criteria , 2009 .

[16]  R. W. Vossen.  Relative Strengths and Weaknesses of Small Firms in Innovation , 1998 .

[17]  Nur Indriantoro.  Metodologi penelitian bisnis , 2003 .

[18]  Constantin Zopounidis,et al.  The evaluation criteria of the venture capital investment activity: An interactive assessment , 1987 .

[19]  Wee Liang Tan,et al.  Singapore Venture Capitalists (VCs) Investment Evaluation Criteria: A Re-Examination , 1999 .