Relevance of Human Capital in the Process of Finding Venture Capital Investors

Table of Contents

List of Abbreviations

List of Figures and Tables

1. Introduction
1.1 Statement of Problem
1.2 Objectives and Method of Investigation

2. Definitions
2.1 Human Capital
2.2 Venture Capital

3. Presentation of HC to Venture Capital Investors
3.1 HC importance for Venture Capital Investors
3.1.1 Management Levels
3.1.2 Research and Development
3.1.3 Marketing
3.1.4 Finance Department
3.2 Measuring Human Capital with the “Saarbrücker Formel”
3.3. Practical Application of the Saarbrücker Formel by Using the Example of the BASF Coatings AG

4. Results and Discussion

5. Conclusion and Recommendations

List of Literature

Internet Resources

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures and Tables

Figure 1: “Die Saarbrücker Formel”

Table 1: “Components for measuring HC in the BASF Coatings AG”

Table 2: “HC in the BASF Coatings AG :results“

1. Introduction

1.1 Statement of Problem

This term paper examines the relevance of human capital In the process of finding venture capital investors.

Since knowledge and skills became a driver for a companies competitive advantage the relevance of HC grew according to corporate success.¹ Remaining competitive in the innovative and rapidly growing market environment gives innovations and thus, HC, knowledge and skills an important role within a companies value creation process.² Therefore HC and thus qualified employees are becoming a key factor when aiming a corporate growth and searching for capital investors.³

1.2 Objectives and Method of Investigation

To analyse this subject the term paper aims to screen the process of finding venture capital investors and to ascertain the role of HC in it. This will be done by first defining HC as well as venture capital and afterwords describing how these two subjects relate to each other by describing the position of HC within a business plan and taking a companies departments as orientation. Afterwords its going to be explained how HC can be represented in key figures by applying the Saarbrücker Formel. As a practical example, the formula will be applied to the BASF Coatings AG. Finally the results will be explained and the findings summarized and critically examined.

2. Definitions

2.1 Human Capital

When defining HC it is more about considering a range of terms which complement each other than quoting a generally valid definition.⁴ Components of HC are for example knowledge, motivation, education and creativity of a companies employee that all together represent the potential and skills of a single person within the working environment.⁵ Furthermore HC describes the potential of value creation from a single employee within a companies value chain and builds a “knowledge-based [Intangible] asset”⁶.⁷ Although HC can be related to 85% of a companies value, there is no explicit position for mentioning it according to IFAS standards.⁸ Finding and managing proper HC in form of employees, is the task of a companies human resource management.

2.2 Venture Capital

Venture capital represents a sort of equity capital which is provided for risky investments. It is a way of funding a business , usually in its early-stage or for growth when there are not many certainties that the business will yield.⁹ Venture capital is often provided by venture capital companies that give a funding in exchange to equity from a venture capitalist, who usually is an institutional or private investor. It is common in fast growing industries with a high level of risk but also a high potential profit and return on investment.¹⁰ While the investment takes place in a risky environment, companies are facing the challenge to persuade venture capital investors of their idea. By showing their competitive advantage based on HC, they have the possibility to demonstrate the potential growing in case of a well arranged employee base.¹¹

3. Presentation of HC to Venture Capital Investors

The following part examines the role of HC within a business plan by using exemplary the departments management, research and development, marketing and finance as they built the most important parts within a business plan.¹² Further it will be described how the findings can help companies to present their business idea to venture capital investors and which ways there are to present HC in monetary terms.

3.1 HC importance for Venture Capital Investors

On the way of finding venture capital investors, a well prepared business plan with the companies structure and objective is absolutely necessary to persuade the investors and to point out the businesses competitive advantage.¹³

The importance of HC for venture capital investors is reflected by their methodical approach when viewing a business plan. After reading the executive summary, many investors tend to look at the management structures to find out whether the central team has the ability to represent the company and to manage the organizational structures. Investors are more convincible and willing to invest if a company is able to present a well organised management and human resource structure but only a middle-rate product, than the other way round.¹⁴ In general a company has several different departments and each requires human resources to create value for the companies success.

3.1.1 Management Levels

The management has two main functions: organizing the business and representing it to the environment. Therefore, general HC like hard skills, for example self-confidence and speed, as well as soft skills, like empathy and creativity, are important for an efficient leadership performance, whereas hard skills are more significant success factors¹⁵ Within a business plan it is difficult to make these HC tangible but it will be recognised while presenting the business plan to venture capital investors.

Although capabilities, like a high experience-and education level, should be mentioned within the business plan.¹⁶

3.1.2 Research and Development

A companies research and development department is an important driver for the companies competitiveness. It is responsible for doing researches according to gain knowledge and improve innovations.¹⁷ Furthermore it may create a competitive advantage due to a unique selling proposition which could be represented by, for example, a special new technology.¹⁸ If a companies aim for success is based on a unique technology or knowledge, these department deserves closer attention within a business plan as it builds the basis of the companies future success. HC like the educational level, commitment to the company and ability of team-work are taking a major position for a successful process, especially because the employees skills can create a companies core competence.¹⁹

3.1.3 Marketing

As the marketing department has the function to integrate the organisational objectives into a product presentation, these employees need to be creative and able to react spontaneously on changed environmental conditions to serve the fast growing markets needs.²⁰ The marketing departments activities are based on the companies innovations gained during the research and development process and aim to achieve the companies goals, create a valuable image whereas making the companies products to stakeholders, for example customers, attractive.²¹ Creativity and innovativeness are parts of HC and affect this departments activities in a positive way when being existent in the range of the employees skills.²²

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¹ Cf. Pawlowsky, P.,Leif, E. (2012), p.5-6

² Cf. Pawlowsky, P.,Leif, E. (2012), p.100

³ Cf. Ranker, D., Wohlgemuth, F., Zwirner, F. (2001), p.269

⁴ Cf. Schäfer, H., Lindemayer, P. (2005), p.3

⁵ Cf. Schäfer, H., Lindemayer, P. (2005), p.13; Lengnick-Hall, M. L., Lengnick-Hall, C.A. (2002), p.45

⁶ Kupiec, E.(2002), p.12

⁷ Cf. Schütte, M.,(2005) p.241

⁸ Cf. Kojan, Phillipe R. (2008), p.40

⁹ Cf. Cf. Cheng, C.Y.(2012), p. 2219

¹⁰ Cf. Cheng, C.Y.(2012), p. 2222, Hahn,C. 82014) p.57

¹¹ Cf.Balls, A.(2001), p.40

¹² Cf. Nagl, A. (2015) p.3

¹³ Cf. Schwetje, B., Vaseghi, S.(2007), p.2

¹⁴ Cf. Pott, O., Pott, A. (2015), p.216

¹⁵ Cf. Kaplan, S., Sorensen, M., Klebanov, M. (2007), Nagl, A. (2015) p.51

¹⁶ Cf. Nagl, A. (2015) p.51

¹⁷ Cf. Sterzel, J., (2011) p.16

¹⁸ Cf. Nagl, A. (2015) p.92

¹⁹ Cf. Nagl, A. (2015) p.161, Lengnick-Hall, M. L., Lengnick-Hall, C.A. (2002) p.5

²⁰ Cf. Engelen, A., Brettel, M. (2011), p.74

²¹ Cf. Stock-Homburg, R. (2013) p.211, Engelen, A., Brettel, M. (2011), p.74

²² Cf. Lengnick-Hall, M. L., Lengnick-Hall, C.A. (2002) p.5