Startup Investment Decision Support: Application of Venture Capital Scorecards Using Machine Learning Approaches

This research aims to explore which kinds of metrics are more valuable in making investment decisions for a venture capital firm using machine learning methods. We measure the fit of developed companies to a venture capital firm’s investment thesis with a balanced scorecard based on quantitative and qualitative characteristics of the companies. Collaborating with the management team of Rose Street Capital (RSC), we explore the most influential factors of their balanced scorecard using their retrospective investment decisions of successful and failed startup companies. Our study employs six standard machine learning models and their counterparts with an additional feature selection technique. Our findings suggest that “planning strategy” and “team management” are the two most determinant factors in the firm’s investment decisions, implying that qualitative factors could be more important to startup evaluation. Furthermore, we analyzed which machine learning models were most accurate in predicting the firm’s investment decisions. Our experimental results demonstrate that the best machine learning models achieve an overall accuracy of 78% in making the correct investment decisions, with an average of 87% and 69% in predicting the decision of companies the firm would and would not have invested in, respectively. Our study provides convincing evidence that qualitative criteria could be more influential in investment decisions and machine learning models can be adapted to help provide which values may be more important to consider for a venture capital firm.

Venturing into retail: SoGal and cherry blossom intimates

Study level/applicability Graduate or Undergraduate Entrepreneurship Majors Subject area Entrepreneurship/Venture Capital (VC) Investing Case overview The case highlights a women-founded venture capital firm that values investments in diverse entrepreneurs and an innovative retail business started by two minority entrepreneurs. Students will be asked whether the firm should invest in the venture and will also be asked to discuss models that may help transform the retail business into a VC-backed scalable technology business. Expected learning outcomes By the end of the discussion, students will be able to evaluate the feasibility and scalability of a new business venture; and evaluate the alignment between a venture capital company and a new venture. Supplementary Materials Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Social Implications This case highlights the lack of resources for women and minority entrepreneurs as well as the underrepresentation of minority women in the VC industry. Subject code CSS 3: Entrepreneurship

Assets need audiences: How venture capitalists boost valuations by recruiting investors to asset circles

Narratives and conventions have received considerable attention in recent discussions of the valuation of financial assets. Narratives and conventions, however, can only be effective to the extent that they attract and persuade audiences, and this article makes the case for paying more attention to those audiences. In particular, the article argues that financial assets can only be established as assets if there is a group of potential investors that has been persuaded to accept them as such: to take them seriously as potential investments. The article coins the term asset circles to refer to such groups and supports the argument with a discussion of venture capital and its role in the production of unicorns: private companies with extraordinary valuations. Venture capital firms may be thought of as value entrepreneurs, and much of the venture capital process is oriented towards constructing both value narratives for the companies they invest in and asset circles prepared to accept those value narratives. Their aim in these processes is a profitable exit, in which the venture capital firm converts its investment back into cash at a considerable profit through either an acquisition or a flotation.

Rufus Rivers and Career Choices in Private Equity and Venture Capital Finance

Rufus Rivers, managing director and co-head of mezzanine investing at The Carlyle Group, is reviewing two employment offers he recently received. One came from RLJ Equity Partners, a private equity firm headquartered in the metropolitan Washington, D.C., area. The other came via Glocap Search, a New York-based executive search firm specializing in placing top private equity executives in premier venture capital roles. The Glocap recruiter had told Rivers that he had been selected as the leading candidate for a position with an established Boston-area venture capital firm that had several exciting investment prospects. In the next few days, Rivers needs to consider his personal and professional interests and make a decision: Should he go to Washington, go to Boston, or stay put—and on what terms?Learn about the different kinds of opportunities available to venture capitalists; Assess whether becoming venture capitalists themselves is worthwhile; Learn how venture capital firms offer positions and the terms under which joining a venture capital firm might make sense for them in their careers.