Research on Venture Capitalists’ and Business Angels’ Investment Criteria: A Systematic Literature Review

Granz, Christian; Henn, Marisa; Lutz, Eva

doi:10.1007/978-3-030-17612-9_5

Christian Granz⁹,
Marisa Henn⁹ &
Eva Lutz⁹

Part of the book series: FGF Studies in Small Business and Entrepreneurship ((FGFS))

2183 Accesses
4 Citations

Abstract

This systematic literature review of 54 articles investigates quantitative and qualitative studies published between 1974 and 2017 in terms of differences in investment criteria between venture capitalists (VCs) and business angels (BAs). Research has shown a persistent interest in examining VCs’ and BAs’ investment criteria; however, inconsistent findings demonstrate the need for a review of the aggregate extant knowledge. We clarify what is known about the controversial debate on VCs’ and BAs’ investment criteria and shed light on key issues that can lead to a better understanding of why VCs and BAs focus on certain investment criteria. To achieve these objectives, we develop a conceptual framework grounded on agency theory for investment criteria that VCs and BAs use for funding decisions. Our review reveals that VCs in the first instance focus on the business and financial traction, whereas BAs initially employ investment criteria related to the management team. These differences between VCs’ and BAs’ investment decision policies support the agency view. In addition, we propose a detailed path for future research and provide entrepreneurs with practical implications.

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Notes

1.
We did not address bank-affiliated (De Bettignies and Brander 2007; Hellmann et al. 2008; Ueda 2004), corporate (Souitaris and Zerbinati 2014) or philanthropic VCs (Scarlata et al. 2016).
2.
We looked for field-relevant journals only as Moritz and Block (2016) did in their literature review on crowdfunding. Among others, the most frequently cited journals in our review included the Journal of Business Venturing, Entrepreneurship Theory and Practice, the Journal of Venture Capital, the Journal of Finance, the Academy of Management Journal, and Management Science.
3.
We followed the approach by Hsu et al. (2014), who theoretically derived VCs’ and BAs’ focus on investment criteria by relying on agency theory to find attributes for their conjoint analysis.
4.
These kinds of biases may arise from respondents’ stimulus to bias results (Feldman and March 1981), perceptual and cognitive restrictions (Nisbett and Ross 1980), and variability, depending on the data collection method (Muzyka et al. 1996; Riquelme and Rickards 1992; Shepherd et al. 2000).
5.
To the best of our knowledge, no appropriate publications exist on bank-affiliated VCs’ investment criteria. For instance, previous research on bank-affiliated VCs investigated bank behavior in terms of VC investing and lending activities (Hellmann et al. 2008) and the effects of bank-affiliated VC activities on portfolio companies (Cumming and Murtinu 2016).

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Heinrich Heine University Düsseldorf, Düsseldorf, Germany
Christian Granz, Marisa Henn & Eva Lutz

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Christian Granz
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Marisa Henn
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Eva Lutz
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Stephan Golla
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Arndt Werner

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Granz, C., Henn, M., Lutz, E. (2020). Research on Venture Capitalists’ and Business Angels’ Investment Criteria: A Systematic Literature Review. In: Moritz, A., Block, J.H., Golla, S., Werner, A. (eds) Contemporary Developments in Entrepreneurial Finance. FGF Studies in Small Business and Entrepreneurship. Springer, Cham. https://doi.org/10.1007/978-3-030-17612-9_5

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