Decision making practices of venture capital firms in Pakistan and United Kingdom | |
| Author | Chaudhry, Wasique Waheed |
| Call Number | AIT RSPR no. SM-98-33 |
| Subject(s) | Venture capital--Pakistan Venture capital--Decision making Venture capital--Great Britain |
| Note | A research study submitted in partial fulfillment of the requirements for degree of Master of Business Administration, School of Management |
| Publisher | Asian Institute of Technology |
| Abstract | The first stirring of modem venture capital in the UK were in the 1930s when Charter house, a UK merchant bank, launched a specialized managed fund to provide equity finance for small and growing businesses. Later, in 1945 an initiative by the Banlc of England and the UK clearing banlcs founded the Industrial and Commercial Finance Corporation (ICFC), now known as 3i (Investors in Industry). However, until the end of the 1970s, only a few other venture capital operations were created, almost all of which were offshoots of clearing banlcs investing small amounts of their own capital. In contrast, the 1980s saw phenomenal growth in the UK venture capital industry. The dramatic change was triggered by a number of factors, Creation of a secondary market, Government policy and the Encouragement of entrepreneurship and institution's changing attitudes to illiquid equity investment. The notion of Venture Capital is not very old in Pakistan, Venture Capital Firms (VCFs) are facing various constraints. They have to encounter new challenges which can be attributed to the inherent risks of venture capital activity and Government Rules of 1995 on the subject. This study provides evidence of venture capital activity development process in two selected Companies from UK and Pakistan. These Venture Firms (VCFs) have set their own vision, fund raising strategy, marketing strategy, investment decision criteria and valuation methodologies. Decision making process is mainly subjective in nature, although it is supported by qualitative and quantitative analysis; and the process depends heavily on the expertise of management. To reduce investment risk, currently VCFs in UK have shifted their focus from high-tech (early stage) firms to growth companies with good track record (MBO/MBI). In the decision making process Venture Capital Firms put utmost importance to Investment Decision Criteria's. VCFs carry out rigorous assessment before investment. In this study investment criteria involved in a project are categorised as Financial Criteria, ProductMarket Criteria, Strategic-Competitive Criteria, Fund-Criteria, Management Team Criteria ,Management Competence Criteria and Deal Criteria. However to carry out over all Investment Decision assessment of the project, a model has been developed based on the experience of VCFs management team and their real practices. The Major stages in Decision Making Process are identified as Evaluating the plan, Initial inquires and negotiation, Due diligence, Final negotiation and completion However, significance of each stage depends on the nature of project and decision making process is influenced by the subjective judgment of VCF management team. For valuation process, British companies follow mainly PIE ratio method, Existing net assets method, Comparison method and Pakistani companies follow Discounted Cash Flow Analysis, P/E ratio method. Figures obtained from different models act as a guideline and the valuation process requires judgment of the management. |
| Year | 1998 |
| Type | Research Study Project Report (RSPR) |
| School | School of Management (SOM) |
| Department | Other Field of Studies (No Department) |
| Academic Program/FoS | Master of Business Administration (MBA) (Publication code=SM) |
| Chairperson(s) | Gupta, Jyoti P. ; |
| Examination Committee(s) | Paul, H. ;Pandey, I. M.; |
| Scholarship Donor(s) | Asian Development Bank - Japan; |
| Degree | Research Studies Project Report (M.B.A.) - Asian Institute of Technology, 1998 |