Linking venture capitalist evaluation criteria and success in the digital industry - Do traditional evaluation models still apply?

Abstract: Despite the attention paid to venture capitalist evaluation criteria and the relation with success in research spanning across industries, literature offering guidance on the digital industry in specific is limited. In order to be able to bridge this literature gap, this study follows a multi-method design, both qualitative and quantitative in nature, and duplicates and extends the study of MacMillan et al. (1987) and Kakati (2003) researching venture capitalists based in Sweden, the Netherlands, and Germany. Our study set the first steps to extend the traditional evaluation model to fit the digital industry. Findings indicated that most of the original evaluation characteristics introduced by MacMillan et al. (1987) still apply today, but that the weighting of these criteria has changed. During the qualitative pre-study new evaluation characteristics become apparent, such as the global scalability of a business model, and were subsequently added to the questionnaire to be tested and measured. Through this study the unique character of the digital industry is illustrated by the new criteria - compared to previous academic studies - that delineated the actual relationship with venture success, such as the existence of workable prototype, customization strategy, global scalability of a business model, and the presence of a well-established distribution channel. Lastly, this study showed that the venture team is not an as important decision factor as previously assumed.