The evaluation of business models by venture capitalists

Abstract: The purpose of this study is to identify the role a business model plays for Venture Capitalists (VCs) when analysing a new venture proposal for funding. The primary data for this research was collected through six qualitative interviews conducted during a two month period. Furthermore, the gathered data was evaluated in accordance with the information found in current literature which describes de term "business model" as well as specific criteria for it. The findings from this research demonstrate that the perception of the role of a business model is strongly similar among the VCs whom were interviewed. They all argued that a business model plays a secondary role in the evaluation process and see it as part of the business plan. At the same time, this research could could pinpoint the fact that no specific instrument including explicit evaluation criteria is currently being implemented by the VCs in question in order to evaluate a business model. Notwithstanding this study cannot be generalized since the pool of applicants included only six Investment Manages working in Venture Capital Funds in Sweden and Mexico. At the same, even though the geographical differences exist, the evaluation process resulted quite similar amongst them. Evidence from this study has demostrated that the current ambiguity of the meaning of the term "business model" is the most frequent perceived challenge to the evaluation of these. Therefore, our interest to shed more light into the topic was encouraged.