Exploring Factors in Start-Up Operations That Influence Decision-Making Strategies of Venture Capitalists (Case Study - Cameroonian Start-Ups)

Friday, February 24, 2023

Exploring Factors in Start-Up Operations That Influence Decision-Making Strategies of Venture Capitalists (Case Study - Cameroonian Start-Ups)

Department: Economics

No of Pages: 97

Project Code: ECONS2

References: Yes

Cost: 5,000XAF Cameroonian

 : $15 for International students

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1.1  Introduction

From a global perspective, Venture Capital industry in the US economy, account for 68% of global VC activity according to Global VC Investment Report (2013). Europe accounts for only 15% of global VC activity. China, the third largest hotbed in the global VC rankings accounts for 11% of the global VC activity.


India, fourth in the global VC rankings, has in the recent years seen an increase of venture funding in consumer services sector. Israel has also seen a sizable share of global VC activity accounting for about 5% of the global activity.


Canada, which accounts for 2% of global VC activity, also had an extremely strong improvement, with volumes up 23% and value up 14% (OECD, 2013). In the U.S. and Western Europe, most venture capital funds are organized as private limited partnership where the venture capitalists serve as general partners and outside investors serve as limited partners (Barry, 2010).


Venture capitalists are actively involved in monitoring, strategic management; marketing and planning of the companies they fund also called investee companies (Murray, 2011).


Much of the interest in venture capital investing in The People's Republic of China is closely related to its rapid economic growth in recent years (Lerner, 2010). China has attracted renewed business attention since its official return to a market orientation.


China’s dynamic growth can be attributed largely to its policy of economic reform and opening its markets to the outside world, which began in 1978 under the leadership of Deng Xiaoping (Stuart, 2013).


According to Kelly (2010) rapid economic growth, bold reform measures, and massive infrastructure plans point to enormous market potential in China.


Hong Kong accounted for more than 40% of the foreign direct investment in mainland China because it has a stronger legal framework and a more mature venture capital industry; many foreign venture capital funds targeting Greater China are now based in Hong Kong (Wang, 2011).

As a key capital Centre in Asia and a gateway to mainland China, Hong Kong’s venture capital industry has grown dramatically over the past ten 3 years. In 2009, 77% of the funds raised in HK came from non-Asian countries (mostly from US), 7% from Hong Kong locally, and 16% from other areas in Asia (Kovner, 2010).


Africa is still seen as a risky and expensive place to do business. Indeed, transactions costs are often higher than elsewhere. Labour costs may be low but often not enough to offset the high costs of transport, raw materials, utilities, and other inputs.


African businesses, therefore, find it difficult to compete in export markets, particularly in markets outside the region, and to compete against imports of a range of goods from other developing regions.


Moreover, many African companies, especially startups, lack reliable financial data that allows financial organizations to scrutinize the health and prospects of the company. Most start-ups in Africa also lack assets that can act as collateral and mitigate the risk involved.


The economic future of developing countries and Africa in particular, is strongly linked to the development of local private enterprises. An important role in this respect can be played by Venture Capital (VC) Funds.

They can support business opportunities through investment relations with private companies in the South and the North, and introduce new business concepts. Hence their impact on the business environment can be significant. There is an increasing interest in establishing new, innovative VC Funds in Africa (FACET, 2005)


In Cameroon venture capital investment is not really as pronounced as in other developing countries because oftentimes start-ups in Cameroon do not meet requirements to attract venture capital investments.


However, in recent times there has been an increase the awareness of venture capitalists. Venture capital gained recognition from late 1990s, when the government, requested for the support of the banking industry to ensure development in the country (Uba, 2009).


Also other banks like Afriland First bank have woken up to the challenge of providing funding for start-up businesses for the sustainable development of the entire country.


The question now is what factors do venture capitalists firms consider before making their investment decisions. This chapter focuses on venture capital finance in Cameroon as well as the factors they consider before making investment decisions

1.2 Problem Statement

The geography of start-up activity and venture capital investment is experiencing a rapid period of globalization, thus making communities more interactive with one another in terms of exchange of ideas and design for solutions.


A start-up, as such, represents a newly emerged business venture that has the intention of developing a feasible business model in order to meet the needs of a society by creating a virtuous cycle that derives constant improvement through innovative solutions.


VCs face challenges in identifying entrepreneurial start-ups that lead to investor return on investment (ROI) because of information asymmetry and environmental uncertainty (Meglio, Mocciaro Li Destri, &Capasso, 2016).


More than 50% of venture backedstart-ups fail, whereas 85% of the investment returns come from only 10% of the investee companies (Nanda & Rhodes-Kropf, 2013). The general business problem that I addressed in this study was that many VCs invest in start-ups either fail or result in a little ROI.


The specific business problem that I addressed in this study was that VCs often have limited strategies for determining which businesses would become profitable when investing in start-ups.

As the country in sub Saharan Africa, Cameroon is faced with a variety of economic problems such as unemployment, poverty and corruption.


Being that Cameroon’s growth is mainly based on public investment and remittances, creation of a vibrant private sector is important to boost growth in order to reduce poverty and generate jobs.


Therefore it is crucial to nurture an entrepreneurship ecosystem as an economic imperative to restructure the way of doing business in Cameroon in order to revolutionize and build sustainable solutions for various sectors such as healthcare, education, tourism, clean energy, poverty, financial services, security, agriculture and so forth.


 Each of these sectors present numerous problems from which entrepreneurs and start-ups can take advantage of, not only to make profits, but also to make a positive impact in our society through driving positive change based on emerging and disruptive technology innovation

1.3 Research questions

The main research question for this study is; what are the Factors in Start-up Operations that Influence Decision Making Strategies of Venture Capitalists?


 1.3.1 Specifically the study seeks to investigate:

  1. How does a start-up’s marketing system affect a venture capitalist’s investment decision?
  2. How does start up Recruitment systems affects venture capitalist investment decision?
  3. How do start-up financial records affect venture capitalist investment decisions?
  4. How does the management of start-up influence venture capitalists’ investment decisions?
  5. How does product factors affect venture capitalists' investment decision?

1.4 Research objectives

Given the main research question, the main research objective of this study is to explore Factors in Start-up Operations that Influence Decision Making Strategies of Venture Capitalists

The specific research objectives here include;

  1. To investigate the relationship between start-up’s marketing system and venture capitalists investment decision
  2. To assess the relationship between a start-up recruitment system and venture capitalist investment decision
  3. To examine the relationship between a start-up’s financial record and venture capitalist investment decision
  4. To find out the relationship between management of start-up and venture capitalists investment decision
  5. To investigate the relationship between products factors and venture capitalists investment decision


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