Predicting success in early-stage venture capital investment

Abstract

In this thesis, I examine predictors of early-stage success (ESS) for early-stage venture capital (ESVC) investments, observable at the point of initial investment. I use a self-collected sample of 30 Norwegian portfolio companies, which all received early-stage funding from a single Norwegian ESVC between 2010 and 2014. A company is characterized as having achieved ESS if it succeeds in raising a pre-defined level of additional capital or increased sales sufficiently within three years of the initial ESVC investment. Cross-sectional regressions show that a higher number of full-time employees (FTEs) at the point of initial ESVC investment significantly improves the likelihood of ESS. The probability of success is also significantly higher for firms with experienced founders, defined as having both prior startup experience and a PhD. Understanding these relationships may help ESVCs reduce risk in their investment decisions, improving expected long-run returns.