Management assessment methods in venture capital: An empirical analysis of human capital valuation

Abstract

Many venture capitalists experience frustration when their investments achieve disappointing results owing to weaknesses in the human capital that were not detected during due diligence. This study examines the methods that venture capitalists use to assess the senior managers of new ventures prior to making an investment decision. 'Human capital valuation' is introduced as a term to describe the process of appraising the human capital (people) in a venture. An a priori conceptual model was tested that accounted for over 70% of the variance in the accuracy of human capital valuations. In addition, inductive analysis yielded several distinct typologies of venture capital approaches to the process of human capital valuation. Implications for researchers and practitioners are discussed.