Due-diligence of potential investors by Finnish start-up companies

• Main Author: Puroila, A. (Aslak)
• Format: Dissertation
• Language: English
• Published: University of Oulu 2018
• Subjects: Management
• Online Access: http://urn.fi/URN:NBN:fi:oulu-201809052723; http://nbn-resolving.de/urn:nbn:fi:oulu-201809052723

Start-up industry has boomed recently globally and early-stage ventures requires capital to finance their activities. Venture capital money is a traditional and the most important source for high-tech and risky ventures to seek capital. The aim of this study is to determine how entrepreneurs evaluate their potential Venture Capital investors and what are the most important characteristics of Venture Capital firms for founder teams. To this end, the research question is as follows: How Finnish Start-up companies conduct due-diligence of their potential Venture Capital investors? The research question is answered through semi-structured one-to-one interviews with Finnish entrepreneurs. The data of interviews was analyzed through content analyze method. The results indicate that entrepreneurs do not evaluate Venture Capital investors enough. Entrepreneurs tend to rely on few easily available sources and ignore deeper analysis of their potential VC partners. Evaluation process is seen as a social process that emerges between entrepreneur and investor through interaction. Entrepreneurs are keen to know reputation and values of the VC investors. Entrepreneurs are likely to accept an offer from a VC that has experience from the same industry. International connections and overall network of investor are seen as most important value-added services. Track record of VC is a moderately important for founders but reputation of VC is more important for entrepreneurs. Term sheet and valuation of venture is important for entrepreneurs and they expect to gain knowledge of VCs philosophy and values from the term sheet paper. Investors that have potential to invest to the company in future finance rounds and investors’ connections to later-stage investors are also seen relevant. Formal and informal meetings and discussions with investors are seen most reliable source to gain understanding of VC companies.