Private equity and venture capitalists' investment criteria in the Czech Republic

journal article - other

English

Rational investment decision making necessitates the existence of investment criteria. In the theory of financial management, the effectiveness of investment is traditionally judged by the degree to which an investment proposal contributes to achieving the main financial goal of business, i.e. market value maximization of a firm. A net present value of an investment proposal is established as a criterion in deciding about whether an investment proposal is acceptable or not, for only investments with a positive net present value contribute to the growth of market value of the firm (cf. Valach [16]). However, the net present value is influenced by the value of individual cash flow, incoming and outcoming, which may not be certain. Therefore, an investor will be willing to provide capital only if an investment risk is rewarded in the form of a risk premium. With reference to investment decision making in the area of Private Equity and Venture Capital, there is typically a higher extent of information asymmetry between an external capital provider and those who receive it. Hartmann and Wendels [5] state that the quality of the investment portfolio of a capital provider depends, in particular, on their ability to assess the risk of individual proposals. To be successful, a selection of appropriate investment criteria in the investment decision making is crucial. Identification and evaluation of significance of these criteria have been dealt with in numerous research projects undertaken particularly in the USA and Germany Private Equity and Venture Capital markets, dating from the seventies up to the present. Tyebjee/Bruno [15], Fried and Hisrich [4], MacMillan et al. [9, 10] and Muzyka et al. [11] emphasize the existence and significance of the following criteria when considering business proposals: market size and attractiveness, management's competencies, product uniqueness, product acceptance in the market and competition intensity. Studies conducted in Germany by Laub [8], Schröder [13] and Eisele et al. [2] contributed to identification of decision criteria in German market. The last of the above-mentioned studies was also dedicated to the weight of evaluative criteria in individual stages of development of the business in which an investment is realized. At present, potential businesses for Private Equity and Venture Capital financing in the Czech Republic do not have information regarding investment criteria and their significance, when considered by investors, at their disposal, which is due to the absence of relevant research results. The fact stimulated this research, whose aim is to identify evaluative criteria of investment proposals from the point of view of Private Equity and Venture Capital investors in the Czech Republic as well as consider the weight of these criteria according to individual stages of development of a business. This research also investigates the reasons why investors refuse to finance some business proposals.

private equity, venture capital, business proposals, investment decision making, investment criteria

ZINECKER, M.; RAJCHLOVÁ, J.

2010

30. 12. 2010

MZLU Brno

Brno

1211-8516

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis

58

6

Czech Republic

26

38

12

https://acta.mendelu.cz/58/6/0641/

http://hdl.handle.net/11012/70193