The Hunt for the Ideal VC: Insights from European Entrepreneurs Stated Preferences

Andrea Bilato

Student thesis: Master thesis

Abstract

Prior academic literature has vastly researched how Venture Capitalists (VCs) make investment decisions, whereas little attention was paid to the other side of the dyad: entrepreneurs, who have always been assumed not to have a saying on whom to partner with. We conducted 21 semi-structured interviews with European startup founders who have cumulatively raised €310M over 33 financing rounds from 70 VCs worldwide. We based our research on a literature review on which we developed a theoretical framework, with the aim of shedding light on founders’ evaluation criteria and stated preferences. We find that VC advice is determined by his behavior, knowledge, and level of involvement. Entrepreneurs prefer an industry expert with operating experience, with whom they can develop a personal relationship, who adopts a Samurai-like modus operandi, and who is able to adjust his involvement based on the entrepreneur’s experience, the topic of advice, and the stage of the company. We further find that VC extra-financial help from external players to the venture is influenced through a signaling mechanism by the VC’s network, reputation, and structural attributes. Entrepreneurs prefer VCs with the appropriate fund size to support the company throughout several rounds, with a portfolio of potential partner companies, a reputation for having backed successful ventures, a powerful brand, a strategic location, and who engage in favorable deal negotiations. Finally, we suggest that too much added-value can be detrimental to the entrepreneur-VC relationship, and that founders should pick diverse and complementary VCs with the aim of building the ideal captable, rather than hunting for the ideal single investor.

EducationsMSc in Management of Innovation and Business Development, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2023
Number of pages172
SupervisorsFrancesco Di Lorenzo