Venture Capitalist's Investment Decision Making in the New Technology Based Firms in Japan

Abstract

In Japan, there has been a notable growth in the percentage of investment in technology based and early stage ventures by venture capitalists (here after abbreviated VCists). I analyze Japanese VCists investment decision making based on a questionnaire survey and discuss a research question; "How do VCists who allocate a higher proportion of their investment in early stage technology based ventures valuate their potential investments as compared to the general Japanese VCists?" The questionnaire survey reveals that a relatively high proportion of Japanese VCists place a special importance on the interview with entrepreneurs, and curriculum vitae of management in valuating the potential investments, while use capitalized maintainable earning (P/E multiples) as their valuation method. However, it seems that VCists who allocate a higher proportion of their investment in the new technology based ventures do not give any special intention to a particular sources of information or valuation methods even though there has been a rapid growth in an investment in the new technology based ventures. This may be because most of the VCists do not have much experience in investing in an early stage of technology based venture and, therefore, continue to use conventional methods which had often been used prior to the rapid growth in investment in new technology based ventures.