Exploring the Decision Making-Criteria of Entrepreneurs on Prospective Investors within New Zealand’s Life-Science Sector

Abstract

Successful life-science ventures contribute significantly to New Zealand's productivity and economic growth. Life-science ventures have the potential to generate and develop substantial amounts of value and growth. However, to generate value and achieve success, entrepreneurs of life-science ventures will undertake a funding-round to acquire additional capital. Entrepreneurs in this sector mainly raise capital for their ventures by obtaining investment from both venture capital (VC) and business angel (BA) investors. Presently, the majority of the prior literature has focused on the decision-making criteria and process of these investors whereas, the equally important research on the entrepreneur's point-of-view on the investment process is limited. So, this study aims to explore the key decision-making criteria of entrepreneurs with life-science ventures on prospective VC and BA investors. Furthermore, this study also seeks to understand the barriers that prevent entrepreneurs from implementing the key criteria when raising capital from both VC and BA investors. To further understand the perspectives and behaviours of entrepreneurs during their evaluation of a prospective VC and BA investor within New Zealand and life-science contexts, this study adopted a qualitative research strategy. Data was collected through twelve semi-structured interviews from two sample groups -entrepreneurs or founders and other key decision-makers such as CEOs and directors of life-science ventures. This study found nine key decision-making criteria during an entrepreneur's evaluation of a prospective investor. The key criteria adopted by entrepreneurs include; valuation, terms and conditions of the contract, reputation, funding round in-progress, size of the investment, personal compatibility, ease of deal-making, follow-on investment, value-adding services and investor and fund attributes. In addition, entrepreneurs in this study observed four main barriers that affect the implementation and utilisation of the key criteria in-practice and so, the ability to choose investors. The main barriers or obstacles encountered by entrepreneurs are as follows; NZ's investment landscape (e.g. limited number of capital and investors), the venture's investment urgency, the venture's business lifecycle stage and lastly, the type of life-science venture.