A MCDA Approach to Venture Capital Decision Support

Chen Feng

Abstract

The aim of this paper is to develop a framework that incorporated Analytic Hierarchy Process (AHP) Approach to support venture capital (VC) decision process. With the observation of rapid growth in VC market, especially in Southeast Asia, more time and resources are put to project selection process. Given the extreme uncertainty that venture capitalists (VCs) faced by having VCs to rely solely on gut feelings and intuition will result in decisions that are prone to cognitive biases. In another word, decisions made might tend to neglect the established investment criteria that the VC firms are looking for. In order to ensure projects that are further evaluated at the later stages are those that have met the criteria of being potentially successful, the framework aims to eliminate projects that do not satisfy the firm’s investment criteria well at the earlier stages. This will ensure that time and resources on the later round are put to minimum wastage. Hence, improving the effectiveness of VC project selection process. In this paper, a step-by-step methodology of the AHP modelling is presented, as well as a case study of two early stage tech developments is shown to be an application of the proposed framework. The methodology is designed to be a general methodology which can be adopted and extend to other individual VCs and VC firms.