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
CHAPTER ONE
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
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
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
The main research
question for this study is; what are the Factors in Start-up Operations that
Influence Decision Making Strategies of Venture Capitalists?
- How does a start-up’s marketing system
affect a venture capitalist’s investment decision?
- How does start up Recruitment systems
affects venture capitalist investment decision?
- How do start-up financial records affect
venture capitalist investment decisions?
- How does the management of start-up
influence venture capitalists’ investment decisions?
- 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;
- To investigate the relationship between
start-up’s marketing system and venture capitalists investment decision
- To assess the relationship between a
start-up recruitment system and venture capitalist investment decision
- To examine the relationship between a
start-up’s financial record and venture capitalist investment decision
- To find out the relationship between
management of start-up and venture capitalists investment decision
- To investigate the relationship between
products factors and venture capitalists investment decision
