Deal Generation: Optimal Modes of Entrepreneurial Value Creation

Abstract

Deal generation represents “lifeblood” of the venture capital industry and is inherently connected to the nature of deals venture capitalists pursue. Venture capitalists often embrace the “accelerated” growth pattern of entrepreneurial development, which is based on external modes of expansion, overfunding, terminating the founding CEO, bringing in external managers, and so on. Venture capitalists often wrongly assume that entrepreneurial firms’ “natural” business development can be somehow changed, accelerated, or hurried. But, achieving successful entrepreneurial growth means expanding at a rate the entrepreneurial firm can manage, control, and afford. The most successful entrepreneurial firms rely on evolutionary and incremental processes. The “natural” value growth pattern of entrepreneurial development is based on a balance between revenue generation and capital conservation. “Natural” entrepreneurial development and “accelerated” value creation may be largely incompatible.