Venture capitalists' decision-making in small equity markets: a case study using participant observation

Despite significant academic research undertaken in the field of venture capital decision-making process, the dimension and maturity of equity market has not yet been considered as an important contextual factor. Aiming at developing an understanding on how venture capitalists (VCs) select early-stage projects in small equity markets, a pilot study using participant observation technique has been conducted in a Portuguese venture capital firm. The findings indicate that the decision-making process and the criteria used by VCs in this market context differ significantly from those used in the developed equity markets. Regarding the decision-making process as a whole, it appears to be more interactive than usually portrayed in previous models. Moreover, some of the activities take place simultaneously, rather than sequentially. In particular, relevant differences were found in deal origination, deal evaluation and closing phase. Regarding the decision-making criteria applied, the findings of this case study are in accordance to previous studies and suggest that the attention of VCs is very focused on entrepreneur(s). The business idea, its sustainable advantages and growth potential are also considered important but, contrarily to previous literature, financial projections do not seem to play a major role in the selection of early-stage projects.