Using the Financial Metrics in Terms of the Investor Decision-Making for Venture Capital Financing

Abstract

The article is aimed at studying the peculiarities of the use of financial metrics inn terms of the investors’ assessment of the potential portfolio venture investments. A comprehensive study of the investment decision-making for venture financing (including in terms of the methods used for assessing venture capital investments) was carried out, for which 31 venture projects investors were interviewed. The respondents in the survey defined the metrics and assumptions they most often use when evaluating venture projects. According to the survey results, less than half of the respondents have used discounted cash flows or net present value as methods to evaluate their investments when investing in venture projects. The most commonly used metrics for venture financing are the Internal Rate of Return (IRR) and the Cash-on-Cash Multiple. In general, it seems that investors in venture financing make decisions that are not consistent with the recommendations of financial theory. Thus, a sixth of the investors surveyed say that they do not use any quantitative metrics in the assessment. A fifth of investors in this survey openly said that they do not use any amendments for risk, and a quarter of respondents use the same amendments for all their investments, despite the fact that different investments face different risks.

Keywords

• financial metrics
• assessment
• investors
• potential portfolio venture investments
• risk