Singapore Venture Capitalists (VCs) Investment Evaluation Criteria: A Re-Examination

Abstract

The Venture capital (VC) industry in Singapore is of recent origin. However, funds under management in Singapore have grown from S$45 million in 1983 to S$7.86 billion in 1996. These developments together with the recent announcement of government's vision of Singapore becoming a hub for venture capital in the region provide an opportunity for an examination of the venture capital industry in Singapore. The VC industry originated in the Western Hemisphere in response to the need for risk capital for high technology industries. In the light of the differences in investment opportunities around Singapore, and the nature of industrial developments in South East Asia in general, the authors anticipated that the investment criteria employed by Venture Capital Firms (VCs) in Singapore would differ. The results however reveal that criteria adopted by Singapore VCs are not very different from those adopted by VCs in other countries including U.S. The results also confirm that the entrepreneur's characteristics or the top management's capabilities are seen as being primary indicators of the venture's potential. Further examination of VCs investment process revealed that the investment criteria adopted by successful VCs were no different from those adopted by less successful VCs. This confirms that investment selection is a multi-stage process wherein venture assessment is only one of the steps in this process. Before VCs evaluate a venture they screen investment proposals based on their investment preferences or investment strategies. VCs in our sample had definite ideas about where to invest and in what types of firms. How do VCs select appropriate investment strategies, however, has not been adequately dealt in the literature and is a fitting subject for further studies.