Interdependence of Venture Capital Screening Criteria: A Decision Support Framework
Abstract
ABSTRACT Studies of the Venture Capital (VC) screening process traditionally assume that VC criteria are independent of other criteria. However, these criteria may interact and influence each other in cause‐and‐effect relationships. Therefore, there is a need to understand the interdependence of VC screening criteria. In this study, a decision support framework is proposed for VC screening criteria, based on the Decision‐Making Trial and Evaluation Laboratory (DEMATEL) method and Intuitionistic Fuzzy Set (IFS) theory (IFS‐DEMATEL). Building on prior work on VC investors, we identify a holistic list of 20 evaluation criteria in seven categories (founding team, product or service, financial, market, environmental, social, and governance characteristics). The IFS‐DEMATEL method is used to identify the relative importance attached by VC investors to different criteria, pinpoint the most significant criteria, and explicate the cause‐and‐effect relationships between criteria. Finally, the proposed framework is used to empirically examine VC screening criteria based on a case study involving VC experts/investors from the UK and the US. We find that environmental protection, the team and working environment, and profitability are the most influential criteria; that is, they have the greatest impact on the other criteria. This study both enhances the VC screening literature and makes an important practical contribution by proposing and illustrating a decision support framework capable of addressing VC screening decisions in complex and imprecise real‐world scenarios.