Print Email Facebook Twitter The impact of ESG characteristics on startup valuation: An empirical study in the Venture Capital setting Title The impact of ESG characteristics on startup valuation: An empirical study in the Venture Capital setting Author Bos, Thomas (TU Delft Technology, Policy and Management; TU Delft Economics of Technology and Innovation) Contributor van de Kaa, G. (mentor) Khodaei, H. (graduation committee) Ralcheva, Aleksandrina (graduation committee) Delgado Medina, Fátima (graduation committee) Degree granting institution Delft University of Technology Programme Management of Technology (MoT) Date 2023-02-02 Abstract This thesis serves as an attempt to establish the initial empirical linkage between environmental, social and governance (ESG) factors and startup valuation by venture capitalists. While substantial academic work has addressed the ESG topic and how firms’ ESG characteristics impact their financial performance and valuations, relatively little ink has been spilled on the issue in the entrepreneurial finance literature. An important impediment for researchers and for investors in the entrepreneurial finance markets wanting to adopt the practice of responsible investing has been the lack of a unified framework for the assessment and quantification of startups’ ESG characteristics. This thesis proposes a startup ESG framework that is based on the status quo of existing ESG frameworks and related literature. The study then analyses a proprietary dataset of 47 technological startups that seek funding from the Dutch venture capital (VC) firm FORWARD.one, to empirically investigate whether the positive relationship between firms’ ESG characteristics and financial valuation, found in the public market setting and the crowdfunding and token offering setting, also holds in the VC context. Multiple Linear Regression (MLR) analysis and Independent Sample t-Tests are used to examine the impact of the startups’ ESG risk scores on their financial valuations. The results indicate that the amount of ESG risk in a startup is negatively correlated to its financial valuation, meaning that venture capitalists do value startups’ ESG characteristics. As a result also those entrepreneurs that seek funding from venture capitalists have an economic incentive to work on their sustainability performance. However, this study finds that sustainability performance is only valued to the extent that it concerns ESG risk management, i.e. minimizing ESG-related negative externalities. The creation of ESG-related positive externalities is not valued by purely financially driven venture capitalists. The study does not attempt to establish a causal mechanism. The findings contributes to the still emergent literature around the role of ESG in entrepreneurial finance markets and several promising avenues for further research are suggested. Subject StartupESG frameworkFinancial valuationEntrepreneurial financeVenture Capital To reference this document use: http://resolver.tudelft.nl/uuid:7e77d484-7f1e-4d95-ae86-d2a569d2e2c4 Part of collection Student theses Document type master thesis Rights © 2023 Thomas Bos Files PDF Master_thesis_Thomas_Bos.pdf 5.94 MB Close viewer /islandora/object/uuid:7e77d484-7f1e-4d95-ae86-d2a569d2e2c4/datastream/OBJ/view