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Using the Financial Metrics in Terms of the Investor Decision-Making for Venture Capital Financing
Mosiyevych O. O.

Mosiyevych, Olena O. (2019) “Using the Financial Metrics in Terms of the Investor Decision-Making for Venture Capital Financing.” Business Inform 8:181–189.
https://doi.org/10.32983/2222-4459-2019-8-181-189

Section: Finance, Money Circulation and Credit

UDC 336.64

Abstract:
The article is aimed at studying the peculiarities of the use of financial metrics inn terms of the investors’ assessment of the potential portfolio venture investments. A comprehensive study of the investment decision-making for venture financing (including in terms of the methods used for assessing venture capital investments) was carried out, for which 31 venture projects investors were interviewed. The respondents in the survey defined the metrics and assumptions they most often use when evaluating venture projects. According to the survey results, less than half of the respondents have used discounted cash flows or net present value as methods to evaluate their investments when investing in venture projects. The most commonly used metrics for venture financing are the Internal Rate of Return (IRR) and the Cash-on-Cash Multiple. In general, it seems that investors in venture financing make decisions that are not consistent with the recommendations of financial theory. Thus, a sixth of the investors surveyed say that they do not use any quantitative metrics in the assessment. A fifth of investors in this survey openly said that they do not use any amendments for risk, and a quarter of respondents use the same amendments for all their investments, despite the fact that different investments face different risks.

Keywords: financial metrics, assessment, investors, potential portfolio venture investments, risk.

Fig.: 14. Bibl.: 10.

Mosiyevych Olena O. – Applicant, Department of Finance, National University of Kyiv-Mohyla Academy (2 Skovorody Str., Kyiv, 04655, Ukraine)
Email: [email protected]

List of references in article

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Gompers, P. et al. “How Do Venture Capitalists Make Decisions?“ NBER Working Papers 22587. 2016. https://www.nber.org/papers/w22587
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Graham, J. R., and Harvey, C. R. “The theory and practice of corporate finance: Evidence from the field“. Journal of Financial Economics, vol. 60, no. 2 (2001): 187-243.
Kiss, A. “Implementation of corporate valuation techniques in practice“. Annals of Faculty of Economics. 2015. http://anale.steconomiceuoradea.ro/volume/2015/n1/095.pdf
Saha, A., and Malkiel, B. “Valuation of Cash Flows with Time-Varying Cessation Risk“. Journal of Business Valuation and Economic Loss Analysis, vol. 7, no. 1 (2012): 1-22.
Sievers, S., Mokwa, C. F., and Keienburg, G. “The Relevance of Financial versus Non-Financial Information for the Valuation of Venture Capital-Backed Firms“. European Accounting Review, vol. 22, no. 3 (2013): 467-511. DOI: 10.1080/09638180.2012.741051

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