Determinants Of Equity-based Decisions In Ethiopia Evidence From Pe And Vc Operating In Ethiopia

The study aimed to explore the determinants of venture capital investment decisions in Ethiopia using a qualitative dominant mixed approach. The study used a thematic and descriptive designs, a narrative and multiple case study methods, and interview as a data collection instrument. Ten venture capital (VCs) and private equity (PE) firms that actively operate in the sector were identified. Of the ten investment firms, only 6 of them were willing to participate in the study. The study results signpost 83.3% of VCs and PE firms invest in growth-stage firms with an average investment of 213,900,000 ETB per venture. It takes VCs and PE firms a minimum of 6 months to cover the investment decision cycle starting with pitching and ending with funding. The high inflation in the economy coupled with the high-risk nature of the ventures has triggered the investment firms to seek a higher IRR. The study also identified seven determinant factors that affect the investment decision of VCs and PE firms in Ethiopia: network capital, entrepreneurs’ character, quality of business plan, entrepreneurs team composition, proposal novelty & game-changing potential, entrepreneurs wolf pack mentality, and business risk.

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