Venture Capital and Valuation: the Importance of the External Landscape
Dr. Peter Boumgarden
Venture capitalists evaluate start-up companies as potential investments through complex decision processes in environments characterized by high levels of uncertainty. Previous research on valuation and venture capital focuses on the role of networks in the valuation process, as well as the emphasis on ventures as standalone entities, specifically in the dimensions of team, market, and proof of concept. Through a qualitative method consisting of 16 semi-structured interviews, we have discovered that the external landscape is a very important factor that often receives only implicit recognition in both previous literature and the thoughts of VCs themselves. Our data suggests that the external landscape has a heavy effect on the start-up companies it interacts with, and is a very important evaluative factor. We think that approaching valuation problems from this more holistic viewpoint is more true to the actual context that VCs inhabit, and it is an important component missing in both the literature and common current practices in the venture capital industry.
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