Venture Capitalists' Selection Process : The Case of Biotechnology Proposals

The goal of this research is to determine how the riskynature of biotechnology ventures influences the investment decision process ofventure capitalists (VCs). First, the method of this qualitative study isdescribed: between October 2003 and February 2004, questionnaires andinterviews were conducted with Belgian venture capital managers. According tothe interviewees, biotech companies are characterized by a long path to amarket-ready product, regulatory difficulties, and a technology that isdifficult to understand. The data also give rise to two propositions, the first of which suggeststhat the selection criteria used by VCs depend on the characteristics of theinvestment proposal (e.g., stage of development and sector) and of the investor(e.g., independent versus captive, generalist versus specialist). According tothe second proposition, VCs require the same standard contractual terms inhighly uncertain environments as they do in more certain environments, but theymanage the uncertainty with post-investment monitoring and governance.(SAA)