"The venture capital process can be characterised as involving two sets of key relationships, those between venture capital firms and their fund providers and those between venture capital firms and the entrepreneurs in whom they invest." (Robbie et al., 1998, p. 1) The present work is concentrating upon the latter relationship. More specifically, it examines the effectiveness of pre-deal screening and post-deal monitoring by venture capitalists.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Pre-deal Screening and Adverse Selection
- Post-deal Monitoring and Moral Hazard
- Restructuring and Failure
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
The main objective of this work is to analyze the effectiveness of pre-deal screening and post-deal monitoring by venture capitalists. The paper concentrates on the relationship between venture capital firms and the entrepreneurs they invest in.
- Adverse selection problems in pre-deal screening
- The role of information asymmetry in investment decisions
- Moral hazard problems in post-deal monitoring
- The effectiveness of various monitoring mechanisms
- The role of active investors in restructuring troubled investments
Zusammenfassung der Kapitel (Chapter Summaries)
Introduction: This chapter introduces the context of venture capital investments and focuses on the relationship between venture capitalists and entrepreneurs.
Pre-deal Screening and Adverse Selection: This chapter explores the challenges of pre-deal screening due to adverse selection. It examines how venture capitalists evaluate entrepreneurs and projects, considering factors such as personal characteristics, experience, market conditions, and the possibility for high returns.
Post-deal Monitoring and Moral Hazard: This chapter discusses the challenges of post-deal monitoring due to moral hazard. It explores various mechanisms used by venture capitalists to mitigate moral hazard problems and the effectiveness of different levels of involvement in investee companies.
Restructuring and Failure: This chapter examines the role of active investors in restructuring troubled investments. It discusses the two general types of problem cases: 'Good Rump' and 'Living Dead', and the challenges associated with enforcing restructuring measures.
Schlüsselwörter (Keywords)
Venture Capital, Pre-deal Screening, Post-deal Monitoring, Adverse Selection, Moral Hazard, Restructuring, Information Asymmetry, Due Diligence, Entrepreneurial Ability, Monitoring Mechanisms, Active Investors, Corporate Governance.
Frequently Asked Questions
What is pre-deal screening in venture capital?
Pre-deal screening is the process where venture capitalists evaluate potential investments and entrepreneurs to mitigate adverse selection problems caused by information asymmetry.
What is adverse selection in investment decisions?
Adverse selection occurs when the investor has less information than the entrepreneur, potentially leading to the selection of low-quality projects. Screening helps identify high-quality entrepreneurs and market conditions.
What is moral hazard in post-deal monitoring?
Moral hazard refers to the risk that an entrepreneur may act in their own interest rather than the investor's after the deal is closed. Monitoring mechanisms are used to mitigate this risk.
How do venture capitalists handle troubled investments?
Active investors may step in to restructure companies. These problem cases are often categorized as 'Good Rump' (restructurable) or 'Living Dead' (unlikely to succeed).
What criteria are used during the screening process?
Venture capitalists look at personal characteristics of the entrepreneur, their experience, market potential, and the possibility for high returns on the investment.
- Quote paper
- Dr. Klaus Schöfer (Author), 1998, Analyse the effectiveness of pre-deal screening and post-deal monitoring by venture capitalists, Munich, GRIN Verlag, https://www.grin.com/document/185876
