A framework for screening and portfolio selection in corporate venture capital. Issue 3 (15th April 2020)

• Record Type: Journal Article
• Authors: Herberger, Tim Alexander; Reinle, Felix
• Is Part Of: Studies in economics and finance. Volume 37:Issue 3(2020)
• Page Start: 475
• Page End: 495
• Publication Date: 2020-04-15
• Subjects: Corporate venture capital -- Portfolio management -- Investment decision -- Data envelopment analysis; Classification G11 -- G12 -- G32; Economics -- Periodicals; Finance -- Periodicals; 330
• DOI: 10.1108/SEF-06-2019-0224
• Languages: English
• ISSNs: 1086-7376

Abstract

Abstract : Purpose: The purpose of this paper is to outline and demonstrate a method for screening and selection of potential portfolio companies (PCs) during the screening phase in corporate venture capital. Design/methodology/approach: The use of the data envelopment analysis (DEA) enables the consideration of individual, heterogeneous and multidimensional decision criteria in portfolio selection and the preceding screening process by the investor. Findings: The result of this method is a relative ranking of the PCs, with all the PCs considered serving as peer group. A weighting of individual criteria is not necessary because it is part of the functionality of DEA. The authors validate the proposed approach in a case study and show that it can be well combined with other models and theoretical frameworks. Practical implications: The method is particularly useful in two cases. First, if a highly specialized investor wishes to use a variety of individual selection criteria for portfolio selection. Second, if an investor only has insufficient (financial) data on potential PCs, but still wants to make a (pre-) selection based on observable (qualitative) characteristics. This model helps to make consistent, intersubjectively comprehensible decisions based on valid decision criteria and helps to optimize the decision-making process in the context of portfolio selection in CVC. Originality/value: This method allows the systematic selection of an attractive group from a large number of potential PCs, based on observable characteristics and taking into account individual strategic investment objectives, without having to make assumptions about underlying distributions or weights of decision criteria.