Imamuddin, Khoso
(2009)
Pakistani Venture Capitalists' Investment
Criteria: A Comparative Look.
Asian Academy of Management Journal (AAMJ), 14 (1).
pp. 1-25.
ISSN 1394-2603
Abstract
This paper has two objectives. First, it identifies investment criteria used by Pakistani
venture capitalists (VCs) in the investment evaluation process. Second, it analyses how
Pakistan VCs decision policies differ from their US and Indian counterparts. It is found
that among Pakistani VCs, the factors related to the entrepreneur and management team
are considered predominant and decisive in making investment decisions. Pakistani VCs
rely heavily on a relationship-based approach in decision policies and may gradually
move to a market-based approach once the economy's formal institutions attain stability.
A relationship-based approach focusing on social networks can help substitute for formal
institutions such as law, regulation and enforcement, which would facilitate the process
of financial and non-financial transactions in the operation of venture capital markets in
emerging economies. The differences I observed among US, Indian and Pakistani VCs
decision policies regarding the use of investment evaluation criteria reflect the
differences in institutional contexts. Moreover, I draw on agency theory to further view
my survey results regarding the venture capital market in Pakistan. The results are in line
with agency theory prescriptions that a relationship-based approach may be better suited
to mitigate the agency problem, particularly adverse selection and moral hazard
problems, by implementing the four prescriptions proposed by Ian and Peter (1994).
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