Title: Venture capital firms valuation in bull and bear markets: evidence from Sweden

Authors: Anders Isaksson; Öystein Fredriksen

Addresses: Division of Innovation and R&D Management, Department of Technology Management and Economics, Chalmers University of Technology, Vera Sandbergs allé 8, SE-41296, Gothenburg, Sweden ' Division of Business Administration, Department of Management and Engineering, Linköping University, SE-58183, Linköping, Sweden

Abstract: This study uses an experimentally designed case study approach to investigate Swedish venture capital firms' valuation practices in two different economic contexts – the economic boom (bull market) of 1999 and the downturn (bear market) of 2002. A key finding in our study is that during economic downturns, venture capital firms employed fewer and less advanced valuation methods – relying more on rules of thumb and gut feeling than during boom times. We conclude that investor behaviour is considerably affected by current economic conditions and advocate strongly that it be considered in future research on not only venture capital valuation, but also investor behaviour in general. This study thus enriches the knowledge of venture capitalists' valuation practices, in general and how market conditions affect them. Furthermore, the results can also aid researchers in developing more relevant theories of valuation, valuation models and valuation practices.

Keywords: venture capital; valuation; asset-based valuation; discounted cash flow valuation; required rate of return; dot-com bubble; economic bubbles; bull market; bear market; investor behaviour; Sweden.

DOI: 10.1504/IJEIM.2020.105771

International Journal of Entrepreneurship and Innovation Management, 2020 Vol.24 No.2/3, pp.97 - 115

Accepted: 08 Feb 2018
Published online: 13 Mar 2020 *

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