Determinants of security design in venture capital investment: a study on Indian start-ups
by Sarita Mishra; Suresh Kumar Sahoo
Global Business and Economics Review (GBER), Vol. 29, No. 1, 2023

Abstract: An imperfect competitive financial market has a few underlying problems such as an adverse selection and information asymmetry problem which is the same in the case of a venture capital (VC) investment deal. In these contexts, VC investors design their mode of financing to minimise the effect of the above issues. This study considers various contributing factors for selection decision of security design in different venture capital deal. In this regard, various venture capital method of investment in an entrepreneurial firm has been included in this study. Three categories of factors affect security choice by VC investors to invest in India: 1) firm characteristics including age of the firm, stage of the firm and type of industry; 2) VC characteristics include industry experience, total investment experience and past success experienced by the investors; 3) deal characteristics include size of investment, stage funding in various round, syndication and VC stake holding in entrepreneurial firm, revenue generated in previous investment. The statistical significance of these factors is accessed through multinomial logistic regression analysis across different categories of security choice undertaken by venture capitalist in Indian start-ups.

Online publication date: Wed, 05-Jul-2023

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