Do investors and entrepreneurs match? – Evidence from the Netherlands and Sweden

Abstract

Entrepreneurs and investors face challenges in the ‘thin market’ for early stage entrepreneurial finance. Improving the situation has been a priority of policy makers for at least a decade, however, the challenges in this matching process are still poorly understood. Theory suggests that matching problems may originate in different perceptions in areas such as evaluation criteria, risk and risk management by investors and entrepreneurs. To find a good match it is essential to understand what is important to your counterpart. These problems are likely to be strongest in new and capital intensive sectors, like green tech innovations. Based on a mixed methods approach using semi structured interviews and a survey with both entrepreneurs and investors mostly active in green tech innovation, this study systematically analyses where their perceptions deviate and frictions in the matching process may occur. We find that a mismatch exists in the perception of risk, the importance attached to risk, the search channels used to find a potential partner and the evaluation criteria applied in evaluating a proposition (i.e. exit, innovativeness, capabilities of teams). Our results call for policy measures to increase market transparency and inform both sides of the searching process to create a mutual understanding of the investment process.