Criteria Distinguishing Successful from Unsuccessful Ventures in the Venture Screening Process

Posted: 17 Nov 2009

See all articles by Ian C. MacMillan

Ian C. MacMillan

University of Pennsylvania - Management Department

Lauriann Zemann

affiliation not provided to SSRN

P. N. SubbaNarasimha

affiliation not provided to SSRN

Date Written: 1987

Abstract

Previous studies helped researchers decide which criteria venture capitalists use to assess venture proposals. Yet, none of these studies have discussed whether these criteria are actually useful in determining a startup's potential for success or failure. The extent to which the criteria recognized in past research are valuable firm performance predictors is examined. Surveys from 150 venture capitalists throughout the U.S. were analyzed. Due to the mixed type of supported ventures and in order to address the problem of bias in the responses, a cluster analysis was conducted to determine any broad subpatterns in successful and unsuccessful startups. The results of the cluster analysis included three major findings: 1) each class of unsuccessful venture had a look-alike class of successful venture that differed only in one major flaw--and this flaw led to nonsuccess rather than success; 2) two criteria were observed which were not heavily weighted by previous studies, but which were the only consistent predictors of success across different performance criteria. These criteria, competitive threat and degree of market acceptance of the product, were already used by the venture capitalists to weed out undesirable ventures; 3) a modest level of convergence was shown between this and other studies. (SFL)

Keywords: Product characteristics, Market characteristics, Venture capitalists, Firm performance, Survival rates, Startups, Management teams, Market competition, Firm survival, Failure analysis, Early stage capital, Risk assessment

Suggested Citation

MacMillan, Ian C. and Zemann, Lauriann and SubbaNarasimha, P. N., Criteria Distinguishing Successful from Unsuccessful Ventures in the Venture Screening Process (1987). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1504521

Ian C. MacMillan (Contact Author)

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

Lauriann Zemann

affiliation not provided to SSRN

No Address Available

P. N. SubbaNarasimha

affiliation not provided to SSRN

No Address Available

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