Venture Capital Process: Opportunity Selection, Monitoring, Capital Rationing, and Deal Flow
26 Pages Posted: 23 Sep 2018
Date Written: September 1, 2018
The study investigates specific characteristics of the venture capital market: opportunity selection, monitoring, capital rationing, as well as deal flows and channels, in greater depth. It covers a developing market (South Africa) and uses qualitative methodology. Quality of opportunities is generally low, impacting industry efficiency through increased opportunity costs. Markedly about the assessment of applications, is the degree of structure to the process, and intuition involved. At the post investment stage, portfolio companies are managed in a variety of ways, including providing strategic and operational structures and insight, as well as shared services to enhance business functions. In certain cases, capital rationing prevails in the VC market. Deal referral is an important source of opportunities, underscoring the importance of a network and strong reputation. Overall, the VC market is still in its infancy, with a lack of awareness of both its existence as well as its operation. Key recommendations include: 1) improving entrepreneurs' investment readiness, to increase VC market efficiency; 2) considering the use of technology to automate opportunity screening and selection; 3) placing even greater emphasis on the entrepreneur when managing aspects at a post investment stage; 4) the effective use of entrepreneur incentives; 5) more efficient use of online platforms to efficiently source opportunities; 6) further investigating potentially untapped VC market growth potential due to capital rationing; and 7) increasing VC market awareness and attractiveness.
Keywords: venture capital, private equity, opportunity selection, monitoring, capital rationing, deal flow
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