AN ALGORITHM FOR INCORPORATING NON-FINANCIAL FACTORSINTO THE INVESTMENT DECISION-MAKING PROCESS

Abstract

In the private equity and venture capital sectors, investing in a non-public company is often associated with the secrecy of financial information, the absence of market benchmarks, and significant information asymmetry. Under these circumstances, the non-financial characteristics of the investment object acquire a significance comparable to the financial parameters of the transaction. However, existing approaches focus their consideration primarily on the screening, expert diagnostics, and strategic analysis stages, without translating the influence of the identified factors into calculated performance indicators. The purpose of this study is to develop and substantiate an algorithm for considering non-financial factors in the investment decision-making process in private capital. The article clarifies the concept of non-financial factors as applied to the private equity segment, demonstrates the role of performance assessment as a central stage in investment decision-making, and substantiates the need for quantitative consideration of non-financial factors at this stage. A proprietary algorithm is proposed, built on step-by-step logic and including the translation of non-financial factors into financial model parameters, the calculation of basic and adjusted performance indicators, and an investment decision-making matrix. The obtained results can be used by private equity and venture capital funds at the pre-investment analysis stage.