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EIRpaper3

EIRpaper3

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INVESTMENT BEHAVIOR
IN GENESIS/PRE-SEED ICT VENTURES IN ISRAEL
INVESTMENT BEHAVIOR
IN GENESIS/PRE-SEED ICT VENTURES IN ISRAEL

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Published by: Dr. Jimmy Schwarzkopf on Jun 09, 2008
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10/14/2011

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INVESTMENT BEHAVIORIN GENESIS/PRE-SEED ICT VENTURES IN ISRAEL
By
Dr. Jimmy Schwarzkopf  Research Fellow & Partner
STKI
 jimmy@stki.info
 Dr. Schwarzkopf has worked during the last 30 years in all areas of Computer Information Services. IT Analyst asMETA Group Israeli Research Manager and was named a META Group Research Fellow. As an academic researcher inEntrepreneurship Sciences has published and presented in the Academy of Management and Babson Conferences. Asa consultant in Arthur Andersen Consulting (USA), Booz Allen (USA) and Kesselman & Kesselman. As a systemsprofessional in SCS Computers and the R&D Unit of the Israel Defense Forces. As a sales and marketing professionalin Digital Equipment Corporation. Teaching in the MIS department at Ben Gurion University and the Computer Schoolof the IDF. Entrepreneur founding two companies in the IT arena: store and forward mail and office informationsystems.Dr. Schwarzkopf received BSE and MSE degrees (Systems Engineering) from the University of Central Florida. Got hisMSIA (Management Information Systems) and ABD (PhD Program) in Systems Science (received (twice) the WilliamLarimer Mellon Scholarship/Award) from Carnegie Mellon University. His doctorate (Management/ Entrepreneurship)he got from Case Western Reserve University.
 
Paper: STKI 134May 2007
 
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INVESTMENT BEHAVIORIN GENESIS/PRE-SEED ICT VENTURES IN ISRAELABSTRACT
The study of entrepreneurship over the last decade has contributed significantly tounderstanding the processes involved in assessment of ventures. Limited research has beenconducted on the subject of genesis/pre-seed entrepreneurs and how investors assess them inorder to predict post-investment performance. This study is an initial attempt to advance thestudy toward understanding this special case of genesis/ pre-seed stage ventures with a focusof inquiry on the interaction between investors and entrepreneurs in the context of organizinga new venture mainly as a source of new value.The study results suggest that factors such as forecasted social control, forecastedoutput control and forecasted behavior control often lead investors to predict higher post-investment performance. It also finds that the investor’s entrepreneurial background as wellas the type of investment firm affects the venture’s post-investment performance. Thesefindings provide tentative insight as to how VCs assess and predict performance of genesis/pre-seed ICT ventures in Israel.
 
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TABLE OF CONTENTS
Abstract ..................................................................................................................................... 2Introduction ............................................................................................................................... 4Conceptual Framework and Hypothesis ................................................................................. 10Constructs ............................................................................................................................... 19Research and Analysis ............................................................................................................ 30Results .. .................................................................................................................................. 44Discussion and Findings ......................................................................................................... 45Summary and Implications ..................................................................................................... 49Limitations and future research .............................................................................................. 49Conclusion .............................................................................................................................. 51 AppendixAppendix A: Survey: Items Used in the Model ......................................................... 53Appendix B: Statistics................................................................................................ 58References ............................................................................................................................... 62 List of FiguresFigure 1: Conceptual Model for “EIR Program” ....................................................... 17Figure 2: Model for Constructs of Trust, Control, and Cost in EIR programs .......... 18Figure 3: Hypothesized “Generalized” Model for “Investment Decisions in VCInvestments and Post-Investment Venture Performance” .............................. 19Figure 4: Investment Behavior and Post-investment Performance Model ................ 47Figure 5: EIR: Investment Decision Model ............................................................... 47Figure 6: Non-EIR: Investment Decision Model ....................................................... 48Figure B1: CFA Model .............................................................................................. 59Figure B2: First Specified Model .............................................................................. 60List of TablesTable 1: ICT Equity Investors (Genesis/Pre-Seed Stage) Operating In Israel ............. 5Table 2 Investor Firms That Answered Our Survey ................................................... 32Table 3: Entrepreneurial Background of VCS ........................................................... 32Table 4: Origin of Opportunities in the Deal Flow .................................................... 33Table 5: EIR Program Success .................................................................................. 34Table 6: EIR and Non EIR Opportunities That Get Invested (%) ............................. 34Table 7: Composite Descriptive Statistics and Correlations ...................................... 36Table 8: Pattern Matrix .............................................................................................. 38Table 9: Factor and Item Table (Reliability, Loadings, Communalities) .................. 39Table 10: CFA Loadings ............................................................................................ 40Table 11: Results for First Specified SEM Model ..................................................... 41Table 12: Results for First and Last SEM Models ..................................................... 42Table 13: Final Re-Specified Model Results ............................................................. 43Table 14: Final Hypotheses Tables ............................................................................ 44Table B1: EFA Based Factor Correlation Matrix ...................................................... 58Table B2: Variance Explained by the Factors ........................................................... 58Table B3: p Values Used For Re-Specification of the Model (11 Steps) .................. 61Table B4: Model Fit Statistics for All 11 Re-Specified SEM Models ...................... 61

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