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What You Are Is What You Like—Similarity Biases in Venture Capitalists' Evaluations of Start-Up Teams
Abstract
This paper extends recent research studying biases in venture capitalist's decision making. We contribute to this literature by analyzing biases arising from similarities between a venture capitalist and members of a venture team. We summarize the psychological foundations of such similarity effects and derive a set of hypotheses regarding the impact of similarity on the assessment of team quality. Using data from a conjoint experiment with 51 respondents, we find that venture capitalists tend to favor teams that are similar to themselves in type of training and professional experience. Our results have important implications for academics and practitioners alike.
... To gain access to not only the needed financial resources but also networks or physical resources needed for their firms to succeed, entrepreneurs face the challenge of screening and selecting the right investor (Saetre 2003). Yet, research on entrepreneurial investor selection criteria is scarce compared with the abundant literature on how investors evaluate entrepreneurs and their ventures (i.e., Franke et al. 2006Franke et al. , 2008Petty and Gruber 2011;Shepherd et al. 2003;Shepherd and Zacharakis 2001). Few studies have investigated VC investments from an entrepreneur's perspective (e.g., Drover et al. 2014a, b). ...
... Conjoint analysis, which originally stems from marketing research, has been widely employed in entrepreneurial finance to assess the relative importance of the investment criteria of VC investors (e.g., Franke et al. 2006;Shepherd et al. 2003). First studies have evaluated the decision-making criteria of entrepreneurs during investor selection (Drover et al. 2014a, b;Valliere and Peterson 2007). ...
... Although there is a learning effect when evaluating profiles, respondent fatigue is a critical issue in conjoint designs (Reibstein et al. 1988). With 18 profiles to evaluate, our survey is in line with studies that have shown robust results (for example, Franke et al. 2006;Shepherd et al. 2019;Warnick et al. 2018). To further address the issue of ordering effects, we had four versions of the survey, changing the order of attributes and profiles displayed. ...
Start-up growth is inevitably dependent on the provision of external resources. Yet, even though corporate venture capital could be an attractive funding source as it provides financial as well as crucial additional resources, corporate venture capitalists (CVCs) are seen as a two-sided sword by entrepreneurs. We, therefore, investigate entrepreneurs’ consideration of potential CVC investors and conceptualize a model of their willingness to approach a CVC investor. Using a conjoint experiment with 1680 investor profiles evaluated by 105 entrepreneurs, we show that entrepreneurs consider the investor’s motivation, deal experience, access to firm-specific resources, and long-term financial commitment of funds. However, entrepreneurs’ evaluation differs depending on their need for specific resources, as well as their fundraising experience. We thereby highlight entrepreneurs’ anticipatory trade-off decisions in the light of resource dependence and help CVC managers to optimize their communication and management efforts to attract the most suitable portfolio companies.
... These investors are concerned about not only potential agency problems (moral hazard and adverse selection), but also the extent to which an entrepreneur is willing to take advantage of the non-financial resources offered (Huang & Knight, 2017). Factors such as the investor liking the entrepreneur (Huang, 2018;Mason et al., 2017;Sudek, 2006), the perceived similarity between investor and entrepreneur (Franke et al., 2006;Murnieks et al., 2011), the entrepreneur's openness to feedback (Ciuchta et al., 2018), and the entrepreneur's expressed fondness for an investor (Nagy et al., 2012;Westphal & Stern, 2007) have been shown to increase the likelihood of investment. These characteristics and behaviors influence the investor's confidence that the entrepreneur will likely advance the venture by taking into account the investor's interests and capitalizing on the non-financial resources provided (Huang & Knight, 2017). ...
... The values they hold often deviate from predominant values in a particular national culture (Hofstede et al., 2004;Jaén et al., 2013). The same could indeed hold for early-stage equity investors, many of whom have entrepreneurial experience themselves (Franke et al., 2006;Morrissette, 2007). Moreover, early-stage equity investors are also known for their large international networks (Drover et al., 2017) and most of them make investments in syndicates (Jääskeläinen, 2012;Mason et al., 2019). ...
... We also contribute to the emerging stream of literature on entrepreneur-investor fit by taking into consideration investors' expected involvement in portfolio ventures. Previous research has shown that investors prefer entrepreneurs who are similar to them (Franke et al., 2006;Murnieks et al., 2011), which we propose is because people assume that similarity is conducive to cooperation (Toma et al., 2012). Ciuchta et al. (2018) and have demonstrated that investors who are willing to mentor place more value on entrepreneurs' displayed coachability when making investment decisions. ...
Building on social-psychological insights into social perception and judgment and empirical findings from the entrepreneurship literature, we propose that early-stage equity investors look at two main dimensions to assess entrepreneurs seeking early-stage financing: competence and cooperativeness. In all, 84 angel investors and venture capitalists active in Europe participated in a conjoint experiment. The results show that investors prioritize entrepreneurs’ competence over their cooperativeness. Entrepreneurs’ competence is even more appealing to investors when combined with coachability. We find that entrepreneurs can compensate for a lack of experience by demonstrating solid market knowledge and appearing to be coachable. Furthermore, the results suggest that investors differ in their consideration of entrepreneurs’ cooperativeness, but not competence, when making investment decisions—a finding that is conditional on investors’ usual level of involvement in their portfolio ventures. We discuss these findings from a theoretical and practical perspective.
... Indeed, before the introduction of advanced techniques as conjoint analysis (Muzyka et al. 1996), most studies used post hoc analyses (Zacharakis and Meyer 1998) that may cause post hoc rationalization biases to respondents affecting the quality of results (Zacharakis and Meyer 1998;Petty and Gruber 2011). For this reason, past studies have been rediscussed and, in many cases, refuted (Zacharakis and Shepherd 2001;Shepherd et al. 2003;Franke et al. 2006;Petty and Gruber 2011). ...
... In accordance with previous research (Franke et al. 2006;Haynie et al. 2009;Drover et al. 2017b;Warnick et al. 2018), the following control variables were included: VC age, gender, education and experience. ...
... This study has significant academic implications. First, reviewing the academic literature, it emerges that VCs encounter difficulties in evaluating the quality of the investment so they must rely not only on quantitative evaluations, but also on subjective and nonrational ones (Franke et al. 2006;Murnieks et al. 2011). Therefore, an approach that analyzes intangible resources is particularly relevant. ...
Startups contribute significantly to the economic development of a country. Despite their importance and promising future, they are extremely fragile, mainly for their lack of tangible and intangible resources. Since this can be obtained through an incubation process, business incubators (BIs) could have a significant impact on the survival rate of startups. Once defined their core structure and value proposition, there are other players, such as venture capitalists who could guarantee the funds necessary to make the startup’s business grow over time. Drawing on the resource-based view theory, this research explores whether some BIs could represent a certification of startup quality for venture capitalists (VCs). Specifically, we investigate whether some specific attributes of BIs increase the probability that a VC funds startups after being incubated; to this purpose, we carry out an experiment on a European sample of VCs. Results demonstrate that some characteristics of the BI can produce a sort of certification effect to the incubated startups, increasing the probability of being funded by VCs.
... For early-stage ventures, human and social capital are the real assets (Hsu, 2007), and VCs place more importance on a team's quality (Fisher et al., 2017;Gompers et al., 2020). Assessing the team's qualitative information is difficult (Kollmann & Kuckertz, 2010) and hence, VCs prefer comparable information and look for teams with more social and human capital, such as those with high level of education, skills, and experience (Claes and Vissa, 2020;Franke et al., 2006;Murnieks et al., 2011). ...
... Due to difficulty in assessing qualitative signals, VCs even prefer teams that have a similar educational background (Franke et al., 2006). This is because similarity reduces cognitive load and eases evaluation. ...
... In risky and uncertain situations, humans make suboptimal economic decisions (Brennan and Lo, 2012), as uncertainty may limit options and push them to avoid risky choices. While evaluating business proposals, VCs prefer entrepreneurs who 'think' in ways similar to their own (Murnieks et al.,2011), belong to similar ethnicity (Bengtsson and Hsu, 2015), regional similarity (Claes and Vissa, 2020) and have similar education and working background (Franke et al.,2006). However, on experience with large corporations, the similarity effects are smaller than the impact of the team characteristics, but not unimportant. ...
Investments in new ventures are risky due to lack of conventional form of quantitative information and untested products. Venture capitalists (VCs) are seen to target such new ventures for high-risk premium but with little success. Existing research has investigated and identified a variety of qualitative factors that impact VCs’ investment decisions; however, many research gaps still exist. Works published in the last two decades show the evolution in the preference of factors with the focus shifting from venture’s team and product to factors such as intellectual property rights, economic crisis and social capital. It was found that the factor’s role was limited to the binary scale (positive and negative), which undermines its effect. The purpose of this review is to provide a comprehensive framework of factors that influence VCs’ investment decisions and show theoretical research gaps. Accordingly, we have segmented factors into two macro-categories: ‘internal’ and ‘external environment’, and presented a detailed framework of the factors that influence VCs’ investment decisions. Further, we argue to consider the subjectivity of qualitative factors and to explore the role of a factor in the decision-making.
... Research found that venture capitalists (VCs) evaluate an investment opportunity more favorably if they believe the founding entrepreneur thinks in a more similar way to themselves (Murnieks et al., 2011). Moreover, VCs have been shown to prefer start-up teams that match themselves in terms of professional or educational background (Franke et al., 2006). Finally, a more recent study has shown that financial analysts issue more favorable forecasts of a particular company when they perceive the company's CEO to be similar to themselves in terms of personality (Becker et al., 2019). ...
... Finally, research has also shown that in case of information asymmetry between current owners and outside (equity) investors, these investors use information regarding the legitimacy of a company's top management team as a signal of value in an attempt to reduce their investment risk (Cohen & Dean, 2005). In summary, there seems to be strong evidence for the notion that information regarding the entrepreneurial team is more important to VCs than it is to bankers when it comes to funding decisions (see also Dixon, 1991;Franke et al., 2006;Goslin & Barge, 1986;Muzyka et al., 1996;Nagy et al., 2012;Shepherd & Zacharakis, 1999;Tyebjee & Bruno, 1981) and it can thus be argued that bankers dealing with distressed credit will be less affected by similarity bias than equity investors. This leaves us with two hypotheses that we pit against each other in the current paper. ...
... We consider this study to be of added value as we questioned whether previous research on similarity bias among VCs could be generalized to the specific context of bankers facing lending requests from entrepreneurs in financial distress. The finding that bankers in our study were less affected by similarity bias when deciding whether or not to provide new capital to an entrepreneur in financial distress contradicts previous research that did find a similarity bias in financial decision making among VCs (e.g., Becker et al., 2019;Franke et al., 2006;Murnieks et al., 2011). We & Fiol, 1994;Harrison et al., 1997;Hill et al., 2006;Sudek, 2006;Van Osnabrugge & Robinson, 2000). ...
For entrepreneurs in financial distress, it is of vital importance that investors and bankers accurately assess the viability of their business, free of unwanted biases that bear no relevance to the assessment of the chance of survival. Despite the prevalence of entrepreneurs facing financial distress, little research has yet investigated the role of cognitive biases in funding decisions in this important context. The current research attends to this issue and investigated whether entrepreneurs who are perceived by a banker as more similar are more likely to receive capital to save their business from bankruptcy than entrepreneurs who are perceived as less similar to the banker. Additionally, we investigated whether similarity bias affected bankers' attributions of what caused the financial distress as well as their perceptions of entrepreneurs' trustworthiness. Using an experimental research design, we found a similarity bias in bankers' causal attributions and trustworthiness judgments, but not in their credit decisions. We contrast our findings with similarity bias research among equity investors and discuss the implications for theory and practice.
... For example, post hoc methodologies use past information that can suffer from recall or rationalization biases (Zacharakis and Meyer, 2000). Thus, more valid results can be achieved through conjoint analysis (Franke et al., 2006(Franke et al., , 2008. Additionally, conjoint experiments are real-time experiments since information is collected while decisions are being made, whereas other approaches collect data only after this process is complete. ...
... In light of these advantages, several studies in entrepreneurial finance have analyzed decision behaviors via conjoint experiments (e.g., Block et al., 2019;Franke et al., 2006Franke et al., , 2008. Moreover, the studies of Bernstein et al. (2017) and Block et al. (2019) show that experiments are gaining increasing popularity within the finance audience over post hoc approaches such as surveys (e.g., Bonini et al., 2018;Gompers et al., 2016Gompers et al., , 2020. ...
... Represents the educational and professional background of the founders Previous literature has shown that the professional background of the founding team influences the selection processes in venture finance (e.g., Franke 2006Franke , 2008Kaplan and Strömberg, 2004). Therefore, this attribute describes whether the founding team has a technical, social, or business educational and professional background. ...
Impact investors pursue both financial and social goals and have become an important source of funding for social enterprises. Our study assesses impact investor criteria when screening social enterprises. Applying an experimental conjoint analysis to a sample of 179 impact investors, we find that the three most important criteria are the authenticity of the founding team, the importance of the societal problem targeted by the venture, and the venture's financial sustainability. We then compare the importance of these screening criteria across different types of impact investors (i.e., donors, equity investors, and debt investors). We find that donors pay more attention to the importance of the societal problem and less attention to financial sustainability than do equity and debt investors. Additionally, equity investors place a higher value on the large-scale implementation of the social project than do debt investors. We contribute to the nascent literature on impact investing by documenting how impact investors make investment decisions and by providing a nuanced view of different investor types active in this novel market. Practical implications exist for both impact investors and social enterprises.
... As the professional background can be seen as an indicator for these values, there could be a similarity-bias in how social venture capitalists evaluate the link between professional background and integrity: Social venture capitalists with a social background tend to value a social background favorably while the ones with a business background prefer social entrepreneurs with business experience. In the context of for-profit venture capitalists, Franke et al. (2006) have tested such a similarity-bias in the selection of investees and found that similarity of the venture capitalist and the entrepreneur in professional experience and field of education, both of which are attributes of the professional background, positively influences the evaluation of the entrepreneur. The existence of a similarity-bias was also shown in employee selection (Anderson and Shackleton 1990) or the selection of business associates (Lichtenthal and Tellefsen 2001). ...
... The use of post hoc self-reported data, can cause biases such as recall bias and post hoc rationalization bias (Shepherd and Zacharakis 1999). Furthermore, decision makers often lack introspection into their own decision policies or bias the results by intent (Franke et al. 2006). Conjoint analysis allows researchers to collect data as the decision is made and thereby overcomes many of the limitations of post hoc methods. ...
This paper analyzes how social venture capitalists evaluate the integrity of social entrepreneurs. Based on an experiment with 40 social venture capitalists and 40 students, we investigate how five attributes of the entrepreneur contribute to the assessment of integrity. These attributes are the entrepreneur’s personal expe-rience, professional background, voluntary accountability efforts, reputation and awards/fellowships granted to the entrepreneur. Results indicate that social venture capitalists focus largely on voluntary accountability efforts of the entrepreneur and the entrepreneur’s reputation when judging integrity. For an overall positive judg-ment of integrity, it seems to be sufficient if either voluntary accountability efforts or reputation of the entrepreneur are high. By comparing social venture capitalists with students, we show that experience leads to a simpler decision model focusing on key attributes.KeywordsSocial entrepreneurSocial venture capitalVenture philanthropyIntegrityConjoint analysis
... Byrne, 1971). Most of the existent research across disciplines has in common that such perceptions of similarity lead to more positive perceptions of others (e.g., Elkins et al., 2002;Franke et al., 2006;Wilson et al., 2016). Past entrepreneurship research indicated that investors evaluated opportunities as more positive when the entrepreneur was more similar to them (Franke et al., 2006;. ...
... Most of the existent research across disciplines has in common that such perceptions of similarity lead to more positive perceptions of others (e.g., Elkins et al., 2002;Franke et al., 2006;Wilson et al., 2016). Past entrepreneurship research indicated that investors evaluated opportunities as more positive when the entrepreneur was more similar to them (Franke et al., 2006;. In a parallel vein, false consensus impacts employers' stereotypes about applicants . ...
Entrepreneurship is not a final career destination. Accordingly, there is an emerging debate in the entrepreneurial careers literature about the employability of former entrepreneurs in subsequent paid employment. By investigating income distributions, current research proposes both earning premiums and wage penalties for former entrepreneurs. Despite the meaningful contributions of this research, the literature occurs predominantly on the macro-economic level with large-scale administrative data, concentrates on post-hire performance measures for such individuals with a “successful” transition into paid employment, and is far away from a consistent picture on the employability of former entrepreneurs. Research on the pre-hire employability of former entrepreneurs is scattered, and it is not intuitively clear if former entrepreneurs are preferred job candidates in the eyes of future employers. Therefore, this dissertation addresses this void by zooming into employers’ subjective perceptions of former entrepreneurs’ employability. By that, this dissertation establishes a pre-hire and cognitive-based perspective grounded in categorization and attribution theories to contribute to the employability debate about former entrepreneurs. To achieve this, Chapter 1 describes the scientific relevance, the goals, and the intended contributions of this dissertation. Chapter 2 develops and tests a novel theory about the employability of former entrepreneurs by accounting for the heterogeneity in employers’ perceptions and the underlying mechanisms in two studies. Overall, employability perceptions are mediated by the positive and negative stereotypes and the inherent uncertainty employers possess about former entrepreneurs resulting in an overall negative perception of former entrepreneurs. Moreover, there is evidence that the entrepreneurship category has “neutral” employment implications if the job opening comes with personnel responsibility, if the entrepreneur has failure in the vita, or if employers are more similar to the entrepreneur. Chapter 3 addresses the stereotypes about former entrepreneurs more directly. Results from a priming experiment indicate that six negative stereotype factors (e.g., difficulties in following instructions) explain the negative employability perceptions and four stereotype factors that compensate for the general negative effect (e.g., good people management). Chapter 4 targets employers’ perceptions of former entrepreneurs’ failure attributions. The results from a metric conjoint experiment indicate that person-centered failure attributions (e.g., lack of skill or lack of effort) outweigh the distancing attributions in the employment interview, especially when the former entrepreneur is female. Chapter 5 has a methodological focus and illustrates the concerns with the current use of test-retest reliabilities in metric conjoint experiments (a recurring issue of the previous chapters). Two simulation studies indicate that the current reliability threshold of r = 0.70 is superficial as regression outcomes are relatively stable across several test-retest reliabilities. The last chapter summarizes the previous chapters and discusses the overall scientific contributions. Overall, this dissertation helps to understand the employment implications for former entrepreneurs by zooming into employers’ subjective evaluations of former entrepreneurs’ employability.
... Les travaux en psychologie sociale sur l'impact de la similarité montrent que les individus sont souvent attirés par des individus présentant les mêmes caractéristiques « apparentes » (surface-level) (âge, expérience, genre) et/ ou les mêmes caractéristiques « profondes » (deep-level) (personnalité, valeurs et attitudes) (Byrne, 1971 ;Engle et Lord, 1997 ;Montoya et al., 2008). Dans la lignée de ces travaux, plusieurs études ont montré que les capital-risqueurs ont tendance à favoriser les entrepreneurs ayant la même formation et expérience professionnelle (Franke et al., 2006) et les mêmes processus de prise de décision qu'eux (Murnieks et al., 2011). Même si la littérature sur la similarité ne traite pas spécifiquement de l'humilité, elle suggère néanmoins qu'un investisseur humble devrait apprécier plus favorablement l'humilité exprimée d'un entrepreneur qu'un investisseur non humble. ...
... Ces critères subjectifs, faisant référence à l'« intuition », le « flair » ou le « feeling » de l'investisseur, sont souvent regroupés dans une « boîte noire » de la prise de décision (Huang et Pearce, 2015). À l'instar des travaux montrant l'impact des traits de personnalité des entrepreneurs (e.g., Chen et al., 2009 ;Murnieks et al., 2015) et des effets de similarité (Franke et al., 2006 ;Murnieks et al., 2011) sur les décisions des investisseurs, cet article contribue à ouvrir la « boîte noire » des critères de décision des capital-risqueurs et des business angels. Ce faisant, cet article peut aider les investisseurs à qualifier et à mesurer avec plus de précision certains de leurs critères de sélection (e.g., capacité d'écoute, ouverture aux autres, agressivité, ou besoin de reconnaissance des entrepreneurs) et à mieux utiliser ces critères en fonction de leur propre stratégie d'investissement ou de l'environnement dans lequel opère la start-up ciblée. ...
Dans cet article, les auteurs proposent une analyse conceptuelle des conséquences de l’humilité et du narcissisme des entrepreneurs – deux traits de personnalité en apparence contradictoires mais potentiellement complémentaires – dans le contexte d’une recherche de financement en capital. Plus précisément, ils montrent comment l’humilité et/ou le narcissisme exprimés par un entrepreneur, en affectant les perceptions des investisseurs (capital-risqueurs, business angels ) sur les qualités et la compatibilité de l’entrepreneur avec un investisseur, impactent la probabilité de financement d’une start-up.
... La aplicación de la Teoría de la Identidad Social al estudio del emprendimiento es relativamente reciente (Franke et al., 2006;Fauchart y Gruber, 2011;Powell y Baker, 2014). Aunque existen algunos estudios que remarcan que la identidad es un predictor potente para las acciones y decisiones que puede llevar a cabo el emprendedor (Cardon et al., 2009;Conger et al., 2012), pocos estudios han tratado la Teoría de la Identidad Social dentro del contexto del emprendimiento. ...
... Aunque existen algunos estudios que remarcan que la identidad es un predictor potente para las acciones y decisiones que puede llevar a cabo el emprendedor (Cardon et al., 2009;Conger et al., 2012), pocos estudios han tratado la Teoría de la Identidad Social dentro del contexto del emprendimiento. Como ya se ha dicho anteriormente, Franke et al. (2006) realizaron uno de los primeros estudios sobre Teoría de la Identidad y emprendimiento, en el que analizaron el proceso de toma de decisiones de las empresas de capital riesgo, encontrando que evaluaban más favorablemente a equipos de inversores con un perfil parecido al suyo. Por su parte, el estudio de Fauchart y Gruber (2011) se centró en estudiar las identidades sociales de los emprendedores y cómo afectaba a la creación de nuevas empresas. ...
El emprendimiento se está convirtiendo en uno de los motores económicos de Extremadura, la cual, sin abandonar la base tradicional de su subsistencia, el sector primario, tiene cada vez más empresas dedicadas a la prestación de servicios. En los últimos años, Extremadura ha tenido una tasa de crecimiento de la actividad emprendedora por encima de la media del resto de Comunidades Autónomas españolas y, antes de la crisis de 2008, incluso por encima de la media europea. Por otra parte, el concepto de Triple Bottom Line ha adquirido notoriedad en los últimos 30 años, proporcionando un marco teórico que justifica la medida de los resultados de la empresa no solamente en el ámbito económico, sino también en el social y el medioambiental, lo que ha provocado una mayor conciencia en los empresarios sobre la necesidad de aplicar prácticas de Responsabilidad Social Corporativa como parte de la estrategia de sus empresas. Además, Extremadura ha sido la primera región de España en contar con una Ley de Responsabilidad Social Empresarial y con un Observatorio dedicado a certificar su cumplimiento por parte de las empresas que así lo deseen, por lo que la Responsabilidad Social Corporativa debe ser tenida en cuenta a la hora de crear una nueva empresa. El objetivo de este estudio es establecer qué factores llevan a los empresarios extremeños a tomar la decisión de emprender en un contexto de sostenibilidad, partiendo de una muestra compuesta por 81 observaciones y aplicando un Análisis Factorial Exploratorio. Los resultados obtenidos muestran que en la decisión de emprender influyen factores como el rendimiento económico que se espera obtener o las aptitudes personales de la persona emprendedora, entre otros.
Entrepreneurship is becoming one of the economic engines of Extremadura, which, without abandoning the traditional basis of its subsistence, the primary sector, has more and more companies dedicated to the provision of services. In recent years, Extremadura has had a growth rate of entrepreneurial activity above the average of the rest of the Spanish Autonomous Communities and, before the 2008 crisis, even above the European average. On the other hand, the Triple Bottom Line concept has gained notoriety in the last 30 years, providing a theoretical framework that justifies the measurement of company performance not only in the economic sphere, but also in the social and environmental spheres, which has led to a greater awareness among entrepreneurs of the need to apply Corporate Social Responsibility practices as part of their companies' strategy. Moreover, Extremadura was the first region in Spain to have a Corporate Social Responsibility Law and an Observatory dedicated to certifying compliance with it by companies that wish to do so, so Corporate Social Responsibility must be taken into account when setting up a new company. The aim of this study is to establish which factors lead Extremaduran entrepreneurs to take the decision to start a business in a context of sustainability, based on a sample of 81 observations and applying an Exploratory Factor Analysis. The results obtained show that the entrepreneurial decision is influenced by factors such as the expected economic performance or the personal skills of the entrepreneur, among others.
... To answer our research question and test the presented hypotheses we use the method of conjoint analysis. This approach was firstly proposed by Luce and Tukey (1964) and has primarily found application in marketing and market research (Gustafsson et al., 2003), but has also been applied within entrepreneurship research (Lohrke et al., 2010) in order to analyze preferences of entrepreneurs (DeTienne et al., 2008), venture capitalists (Franke et al., 2006), and other stakeholders of new ventures (Choi and Shepherd, 2005). ...
... Interesting research via conjoint analysis on financing decisions in the field of entrepreneurship has been conducted byShepherd and Zacharakis (1999) andFranke et al. (2006). ...
Unterscheidet sich die Ausprägung sozialer Präferenzen zwischen Unternehmern und Nicht-Unternehmern? Beeinflussen die sozialen Präferenzen von Unternehmern welchen Geschäftstyp (soziales vs. kommerzielles Unternehmen) sie gründen? Haben soziale Präferenzen einen Einfluss auf produktive und/oder unproduktive unternehmerische Motive? Spielt die Persönlichkeitsstruktur in diesem Kontext eine Rolle? Die vorliegende Dissertation behandelt diese Fragen anhand von vier experimentellen Studien mit Unternehmern, Landwirten, Studierenden der Betriebs- und Volkswirtschaftslehre, sowie Mitarbeitern, Kollaboratoren und Investoren von Start-up-Unternehmen. Dabei werden unterschiedliche Methoden in Labor, Online, sowie „Lab-in-the field“ Experimenten angewendet. Die Ergebnisse zeigen, dass Unternehmer im Vergleich zu den anderen Testgruppen, generell stärker ausgeprägte soziale Präferenzen besitzen, insbesondere bezüglich kooperativer Eigenschaften. Darüber hinaus wird kein Zusammenhang zwischen den sozialen Präferenzen von Unternehmern und ihrer Entscheidung ein soziales oder kommerzielles Unternehmen zu gründen gefunden.
... Many factors that may lead to successful VC investments have been explored, associated with the start-ups [3,5,26], the founding teams [1,11,37], the VC firms [33,36], the investors [23], and the VC investment market [27]. These studies mostly look into correlation between characteristics of VC firms or start-ups and success of the venture without much focus on predicting success of start-ups. ...
... A variety of factors that are associated with success of VC-backed start-ups have been examined by existing research in finance, such as the business models [5], product innovativeness [26], and locations of the start-ups [3], personality [37], prior start-up experience [12,18], and professional and educational backgrounds [1,11] of the founding teams, the syndication [36] and value-adding expertise [33] of the VC firms, the intuition of the investors [23], and the environment of the VC market [27]. These studies are mostly focused on establishing causalities and seldom touch prediction tasks. ...
Predicting the start-ups that will eventually succeed is essentially important for the venture capital business and worldwide policy makers, especially at an early stage such that rewards can possibly be exponential. Though various empirical studies and data-driven modeling work have been done, the predictive power of the complex networks of stakeholders including venture capital investors, start-ups, and start-ups' managing members has not been thoroughly explored. We design an incremental representation learning mechanism and a sequential learning model, utilizing the network structure together with the rich attributes of the nodes. In general, our method achieves the state-of-the-art prediction performance on a comprehensive dataset of global venture capital investments and surpasses human investors by large margins. Specifically, it excels at predicting the outcomes for start-ups in industries such as healthcare and IT. Meanwhile, we shed light on impacts on start-up success from observable factors including gender, education, and networking, which can be of value for practitioners as well as policy makers when they screen ventures of high growth potentials.
... Although venture capital is supposed to fund particularly nascent entrepreneurship in the start-up stage, it appears to rather intervene at companies' subsequent stages of growth (Aernoudt, 2005;Wong 270 et al., 2009). Furthermore, the perception of rapid and necessary growth can skew the judgment of investors who consequently will tend to exclude talented young entrepreneurs who are driven by other motivations (Franke et al., 2006). The desire for strong growth is prevalent among many venture capital investors, even though this culture of corporate growth and perfor-275 mance can hinder the emergence of new businesses (Klotz et al., 2014). ...
... Indeed, according to the OECD (2017) report, venture capital represents only 0.05 percent (or less) of GDP in most OECD countries (for our sample, this percentage is between 965 0.002 percent and 0.05 percent). Second, this finding corroborates previous studies on venture capital, which stipulate that venture capital funds tend to finance projects that are more or less advanced within their early stages (Gompers, 1995;Wong et al., 2009) and prefer to renew financing for firms already in their portfolio rather than take a risk with young entrepreneurs 970 (Bengtsson, 2013;Franke et al., 2006;Klotz et al., 2014). Finally, this result can also be explained by the fact that entrepreneurs at the embryonic stage of their venture prefer to finance their business by using their own financial sources (personal savings or money collected from their informal network) (Davidsson & Honig, 2003;Holtz-Eakin et al., 1994a, 1994bKotey, 1999;975 Mitter & Kraus, 2011) to avoid constraints and pressure from financiers and to maintain their independence as long as possible (Markova & Petkovska-Mircevska, 2009). ...
After the global crisis, European governments have stressed the importance of financing new ventures. Nevertheless, the existing literature provides little information on the extent to which financial development drives new businesses. Using panel data on 22 European economies between 2009 and 2017, this study fills this gap by providing evidence of a U-shaped relationship between financial deepening and nascent entrepreneurship. This implies that without a high level of financial deepening, the banking sector only favors established businesses at the expense of nascent entrepreneurship. The study also shows that banking intermediation and venture capital do not really encourage new businesses at the macro level, whereas financial stability does.
... A new venture's performance depends on the product, its founding team, and macroeconomic factors (Kaplan et al., 2009;Thornton & Marche, 2003); hence, investors consider information about the team, product, and macroeconomic aspects during appraisal (Félix et al., 2013;Gompers et al., 2020;Vazirani & Bhattacharjee, 2021). Investors consider education, skills, social capital, gender, and experience-related information to judge a team's ability (Claes & Vissa, 2020;Franke et al., 2006;Gompers et al., 2020;Hambrick & Mason, 1984;Kanze et al., 2018;Murnieks et al., 2011), whereas investors consider technology, legal protection (IPR), market potential, and sustainability-related information to judge the product (Félix et al., 2013;Kim et al., 2016;Meoli et al., 2019;Payne et al., 2009;Zhou et al., 2016). Although teams and products are the predominant factors (Gompers et al., 2020), investors seek a stable and progressive macroeconomic environment (Table 1) to ensure a smooth journey for the new venture (Bonini & Alkan, 2012;Burchardt et al., 2016;Li & Zahra, 2012), thus suggesting three themes (Fig. 1) of information signals influencing investors' decisions: team, product, and macroeconomic environment (Vazirani & Bhattacharjee, 2021). ...
This study investigates the presence, direction, and scale of bias in investors' consideration of qualitative information signals while appraising new venture proposals through a meta-analysis of 75 empirical studies published between 2000 and 2020. Our results suggest that investors evaluate different information signals differently owing to their varying abilities and motivations. High levels of ability and motivation stimulate elaboration, resulting in positive bias, whereas low levels of both ability and motivation reduce the likelihood of elaboration, resulting in negative bias. However, for lower levels of either ability or motivation, we found a mix of both positive and negative biases determined by the dominance of information cues. While considering the prospects of investment decisions, our results show that signals suggesting growth potential are preferred over those suggesting financial risk coverage. This study has substantial implications for investors to optimize their decision-making processes and enable entrepreneurs to understand investors' appraisal processes.
... In addition, shareholders may further hide business information and act opportunistically. Therefore, capital investment firms screen potential portfolio firms by conducting a due diligence investigation to evaluate the potential investment target (Dawson, 2011;Franke, Gruber, Harhoff, & Henkel, 2006;Muzyka, Birley, & Leleux, 1996;Riquelme & Rickards, 1992;Shepherd, 1999;Shepherd & Zacharakis, 1999;Zacharakis & Meyer, 2000). By gaining company control, PE firms attempt to reduce information asymmetries and to increase the likelihood of the portfolio firm's future success, thus increasing the likelihood of receiving high returns at the end of their investment. ...
... We further believeeven though we will not argue this point in the paper for reasons of brevity and focusthat this argument is further supported by the body of literature showing that VC investors gravitate towards entrepreneurs which are, based on a variety of factors, similar to them (e.g. Franke et al., 2006). An argument could be made that this "similarity bias," either consciously or unconsciously, forms VC-entrepreneur teams which agree and collude on fraud more easily. ...
Purpose
This paper aims to explain the fundraising and valuation processes of startups and discuss the conflicts of interest between entrepreneurs, venture capital (VC) firms and stakeholders in the context of startup corporate governance. Further, this paper uses the examples of WeWork and Zenefits to explain how a failure of stakeholders to demand an external audit from an independent accounting firm in early stages of funding led to an opportunity for fraud.
Design/methodology/approach
The methodology used is a literature review and analysis of startup valuation combined with the Fraud Triangle Theory. This paper also provides a discussion of WeWork and Zenefits, both highly visible examples of startup fraud, and explores an increased role for independent external auditors in fraud risk mitigation on behalf of stakeholders prior to an initial public offering (IPO).
Findings
This paper documents a number of fraud risks posed by the “fake it till you make it” ethos and investor behavior and pricing in the world of entrepreneurial finance and VC, which could be mitigated by a greater awareness of startup stakeholders of the value of an external audit performed by an independent accounting firm prior to an IPO.
Research limitations/implications
An implication of this paper is that regulators should consider greater oversight of the startup financing process and potentially take steps to facilitate greater independence of participants in the IPO process.
Practical implications
Given the potential conflicts of interest between VC firms, investment banks and startup founders, the investors at the time of an IPO may be exposed to the risk that the shares of the IPO firms are overvalued at offering.
Social implications
This study demonstrates how startup practices can be extended to the Fraud Triangle and issue a call to action for the accounting profession to take a greater role in protecting the public from startup fraud. This study then offers recommendations for regulators and standards entities.
Originality/value
There are few academic papers in the financial crime literature that link the valuation and culture of startup firms with fraud risk. This study provides a concise explanation of the process of valuation for startups and highlights the considerations for stakeholders in assessing fraud risk. In addition, this study documents an emerging role for auditors as stewards of proper valuation for pre-IPO firms.
... It also includes research related to the decision-making processes and mental approaches used by investors, as well as the factors that influence these approaches. For instance, Zacharakis and Shepherd (2001) analyzed the influence of information, overconfidence, and experience in investment decisions and Franke et al. (2006) examined the influence of similarity biases on decision-making. ...
Due to the diversity of disciplines, scholars, and journals that publish entrepreneurship research, the literature has become a disorganized clutter, hindering the field’s ability to develop theory. The purpose of this research is to establish a meta-framework that could unify and subsume the diverse disciplines, scholars, and approaches to understanding entrepreneurship phenomena. In contrast to all the inductive approaches to organizing entrepreneurship literature, this exploratory study is the first to use a deductive approach based on General Systems Theory (GST). The paper begins by utilizing the process model of the GST to deduce seven fundamental categories for understanding entrepreneurship, which include: (1) the Entrepreneur, (2) Entrepreneurial Assistance, (3), Strategy, (4) Performance, (5) Academics, (6) Entrepreneurship Environment, and (7) Interactions (among the other categories). The paper then tests the validity and reliability of the GST framework using “expert” entrepreneurship researchers, based on a sample of 621 articles from several of the field’s most highly respected journals using content analysis. Based on this exploratory study, the GST meta-framework of entrepreneurship is shown valid and reliable. Consequently, virtually all entrepreneurship literature can be subsumed under its umbrella. Lastly, this paper organizes almost 50 years of entrepreneurship literature according to the GST framework and offers an overview of the literature across the seven categories and areas of future research.
... Research considering how entrepreneurs and investors match has shown that VCs prefer entrepreneurs with similar decision-making styles (Murnieks et al. 2011). Furthermore, VCs prefer entrepreneurs with similar educational and professional backgrounds (Franke et al. 2006;Ebbers and Wijnberg 2012). AIs with entrepreneurial experience place greater emphasis on entrepreneurial passion than other investors (Warnick et al. 2018). ...
Access to early-stage equity financing is vital to the growth of high-potential new ventures. To understand how entrepreneurs obtain external financing, researchers have studied the effectiveness of different signals that entrepreneurs send to investors. In this paper, we provide an overview of current research that uses signaling theory to study the likelihood and success of obtaining funding from angel investors and venture capitalists. The content analysis reveals that empirical research has well explored the signaling value of grants, prior investments, and the human and social capital of the firm to early-stage equity investors. However, we find that the literature on signaling effects on early-stage equity investors is fragmented and undertheorized. We note that while there has been an increase in the number of studies using signaling theory to explain success in obtaining early-stage equity financing, the theory remains underutilized, despite its suitability for this particular area of research. We describe the core ideas of signaling theory and how researchers have applied them in the context of venture capital and angel investing. We discuss how this stream of research can build on and extend signaling theory and highlight promising avenues for future research.
... VC funds are better aware of the investment opportunities in the domestic markets and hence, show a local bias (Cumming and Dai 2010). Similarly, Franke et al. (2006) show that VC funds prefer to invest in familiar firms. Moreover, they need to closely monitor firms in order to avoid moral hazard problem and would consider physical proximity as one factor for investments (Cumming and Dai 2010). ...
This paper examines the impact of COVID-19 on venture capital financing of firms. We find a significant shift in the profile of firms that obtain venture capital financing during the pandemic-induced economic crisis. Firms in industries that are more amenable to work from home obtain greater amounts of financing. Growth-stage firms operating in amenable industries are able to obtain higher financing than early-stage firms. The higher financing obtained by firms in amenable industries is driven by venture capital funds focused on the domestic market. Additionally, the higher financing is obtained from a single venture capital investor rather than a consortia of investors. Taken together, the preference of venture capital funds indicate a less risk-averse behavior in financing firms amenable to remote working. The findings of our study using monthly firm-level data provide insights on venture capital financing during the pandemic.
... As a consequence, inspired by the opening blackbox of the mindset of entrepreneurs and the relationship between the uncertain decision context and the heuristic cognition process (Mousavi and Gigerenzer, 2014), recent studies on venture investment have turned the focus from objective factors to subjective features, exploring the influence of psychological characteristics and cognitive processes. For example, one of the most salient mechanisms is similarity bias, investors have the tendency to invest in entrepreneurs who have the same features with them, such as same education background, working experience (Franke et al., 2006), and cognitive mode (Murnieks et al., 2011). Moreover, motivational clues, such as passion, commitment (Cardon et al., 2017;Warnick et al., 2018), psychological capital (Anglin et al., 2018), developed identity (Wry et al., 2014), and narratives (Pan et al., 2020) of entrepreneurs are also among the psychologically related factors that affect the cognitive process of investors. ...
Amid great uncertainty along with the possibility of huge returns, venture investment decisions are both technical and artistic. Past studies have paid much attention to the influences of objective factors on venture investment. However, subjective factors have been relatively ignored. As a salient psychological mechanism, temporal focus is of great importance for venture capitalists when making their investment decisions. This study performed content analysis to investigate how temporal focus at the organizational level affects investment decisions of venture capital (VC) firms. The results revealed that VCs with higher level of long-term orientation prefer to invest in less popular industries and ventures in the expansion period. Meanwhile, they are less likely to invest in very new start-ups. Moreover, long-term oriented VCs tend to re-invest in start-ups in their portfolios instead of just shooting once on numerous single start-ups. However, the author did not find any support on preferences of VCs for ventures with high level of human capital.
... Yet, decisions about control and resource attraction may also be influenced by entrepreneurs' social identity, or how they define themselves in terms of their relationships in the social world (Hogg et al. 1995;Tajfel and Turner 1979). A growing body of work points to the role of an entrepreneur's social identity as a powerful predictor of their decisions and actions (Fauchart and Gruber 2011;Franke et al. 2006;Pan et al. 2019;Powell and Baker 2014;Rutherford 2021). Entrepreneurs who hold different social identities pursue different goals and derive fundamentally different types of benefits from their entrepreneurial activities (Fauchart and Gruber 2011;Pan et al. 2019). ...
In order to obtain a better understanding why some entrepreneurs retain more control over their venture than others, this article analyzes the relationship between the social identity of the entrepreneur and her/his desire for control. In fact, entrepreneurs face an important tradeoff between attracting resources required to build company value and retaining decision-making control. Yet, we currently lack insight into whether and how entrepreneurs’ social motivations shape this trade-off. This study draws on social identity theory and a unique sample of 148 buyout entrepreneurs, as this setting confronts aspiring entrepreneurs directly with the value–control tradeoff. In our logistic regression, we find that entrepreneurs with a strong missionary identity, where venture creation revolves around advancing a cause, hold a higher desire for control. We do not observe a significant relationship between entrepreneurs having a Darwinian (driven by economic self-interest) or communitarian (driven by the concern for the community) identity and the desire to control their venture. When adding the moderating role of the portion of personal wealth the entrepreneur is willing to invest in her/his venture, the relationships between having a Darwinian or missionary social identity and the desire for control become significantly positive when the entrepreneur is looking to invest a larger portion of her/his wealth.
... Miller and Wesley (2010) show that social venture capitalists tend to acknowledge the dual organizational identity of social enterprises and use both economic and social measurements but still rely more on traditional entrepreneurial criteria to make their decision. It is likely that, in the same way venture capitalists make biased decisions by favouring entrepreneurial teams that are similar to them (Franke, Gruber, Harhoff, & Henkel, 2006), venture philanthropists are tempted to fund SETs that resemble them. As a consequence, we argue that SETs might feel pressured to give signals (Busenitz, Fiet, & Moesel, 2005) of their compliance to economic indicators, among others by adapting the team composition. ...
Purpose: Entrepreneurial teams are one of the most crystallized forms of collaboration in the generically collective dynamics underpinning social entrepreneurship. Despite their quantitative prevalence, social entrepre- neurial teams (SETs) remain quite absent from the scholarly literature. This chapter aims to develop a research agenda addressing this gap.
Methodology/Approach: This chapter first reviews the scarce literature dealing with this subject and develops an operationalizable definition of SETs. Next, it confronts current knowledge on entrepreneurial teams with the specific context of social entrepreneurship to introduce and discuss main topics of investigation on SETs.
Findings: Six topics are suggested to have a high potential for developing knowledge on SETs: formation, size and extended team, gender, decision- making and leadership, identity, and turnover.
Research Implications: This chapter frames these research avenues within a developmental stages perspective with the aim to contribute to help form and maintain effective SETs.
Originality/Value of Chapter: This research has implications for scholars as it defines SETs as a distinct object for research, which allows extending knowledge on collaborative dynamics in social entrepreneurship, but also on entrepreneurial teams in general. The suggested research agenda and its orientation toward the development of effective SETs should be a spring- board for future research on this subject.
... First, the results of this study are limited by its small sample size. However, with primary variables in NVT research still in their infancy (Klotz et al., 2014), we followed previous impactful NVT studies which also have smaller sample sizes (Franke et al., 2006;West, 2007 (Park et al., 2021), asking respondents to focus on unit or group CSE would produce more generalizable and valid results. To our knowledge, a collective measure of group CSE has not been established, but future research might consider modifying general measures of collective efficacy (Delea et al., 2018;Lent, Schmidt, and Schmidt, 2006) with language pointing to a creativity focus at the group or team level. ...
This study theoretically and empirically examines the important role that goal structures play in new venture teams. Specifically, we examine how creative self-efficacy affects the satisfaction of team members through cooperative and competitive goal interdependence. Relying on social cognitive and social interdependence theories, we contend that new venture teams' creative self-efficacy leads to higher team satisfaction because it promotes the perception of cooperative goal structures among team members. We test our theory on new venture teams in the independent board game industry. Results generally support our hypotheses and we discuss the implications for entrepreneurship research and practice.
... Behavioral reasons can be explained from the perspective of human psychology, and they originate from bounded rationality or cognitive biases (Huberman, 2001). For example, some studies have found that individuals simply feel more comfortable when conducting businesses with product or service providers who are geographically closer to them (Franke et al., 2006). ...
Prior studies have documented local bias in online product and online crowdfunding markets. By collecting a unique longitudinal dataset covering 91,693 Airbnb properties, we find evidence that local bias also exists in peer-to-peer rental platforms. We also prove that local bias has a negative consequence on guest satisfaction and property reputation. In addition, a focus on moderating effects reveals that (a) local bias is less prominent in properties with high prices, and (b) uploading detailed host descriptions can suppress the appearance of local bias and reduce its negative consequences on the online ratings of properties. Therefore, information asymmetry at least partially drives this phenomenon. The findings contribute to the literature and platforms in practice.
... For example, for newly created venture capital firms, founding teams that are more experienced in venture capital, senior management, and consulting are more successful than their more inexperienced counterparts (Walske & Zacharakis, 2009). Moreover, in assessing new venture teams, senior venture capitalists emphasize, in order of importance, teams' industry experience, management education, and leadership experience (Franke et al., 2006). Indeed, founding teams' entrepreneurial and management experience are important because they enable these teams to identify more opportunities. ...
The creation of new ventures and growing them into well-established organizations is the key purpose of managing new venturesmanaging new ventures. This chapter explains the 10 most essential subtopics for managing new ventures (Shepherd et al. in Journal of Management 47:11–42, 2021): (1) lead founderfounder, (2) founding teamfounding team, (3) socialsocial relationships, (4) cognitionscognition(s), (5) emergent organizingorganizing, (6) new venture strategystrategy, (7) organizational emergenceemergence, (8) new venture legitimacylegitimacy, (9) founder exitexit, and (10) entrepreneurial environment. This chapter ties these “managing” subtopics into the three major stages of the entrepreneurial process—co-creatingco-creating, organizing, and performingperforming. The framework provides a cohesive story of managing new ventures.
... For example, for newly created venture capital firms, founding teams that are more experienced in venture capital, senior management, and consulting are more successful than their more inexperienced counterparts (Walske & Zacharakis, 2009). Moreover, in assessing new venture teams, senior venture capitalists emphasize, in order of importance, teams' industry experience, management education, and leadership experience (Franke et al., 2006). Indeed, founding teams' entrepreneurial and management experience are important because they enable these teams to identify more opportunities. ...
Although scaling is a “hot topic” in the practitioner literature, it has mostly been ignored (at least explicitly) in the academic literature. Building on a recent editorial, this chapter highlights the importance of scaling for new venture growth. Scaling refers to spreading excellence within a venture as it grows (organically or through acquisition) from a new (and often small) organization to an established, large organization (Shepherd & Patzelt in Entrepreneurship Theory and Practice , 10.1177/1042258720950599 , 2020). In this chapter, we explore the drivers and consequences of scaling and explain how knowledge management facilitates scaling, how founder replacement impacts scaling, and how current scaling influences subsequent scaling.
... For several years, the empirical research on real teams has grown multifold [36,74]. Overall, 56% of all studies use real teams as focus groups. ...
This article provides a detailed review of entrepreneurial team (ET) research over 30 years across the fields of entrepreneurship, management, organizational science and psychology. 145 articles from 24 journals were identified, analyzed, and classified in a comprehensive, overarching Input-Mediator-Output framework. This overview contributes by organizing ET research into its sub-domains, analyzing their historic developments and trends, providing guidance for positioning future research, and offering trend-based suggestions how the field can be further developed. Our analysis shows that 30 years ago, ET research was mainly about setting a general research agenda, exploring the formation of ETs, and linking the founding team to venture success. During the last two decades, the focus shifted to deeper analyses of particular mediating variables, such as cognitive and affective emerging states.
The most influential articles (by weighted citation) belong to the sub-domain of team composition, which has also become the most frequently studied field during the last 10 years. Authors around the world and from other scientific fields (especially management and organizational science) are now contributing to this domain, which was earlier confined mainly to entrepreneurship scholars from North America. The most widely addressed issues of concern are the lack of theoretical studies and longitudinal data, a bias towards the technology industry, the unavailability of primary data from new ventures, and conflicting findings, especially in the main trending sub-domain of team composition research and in particular on the impact of personality aspects and behavioural dynamics.
... Prior studies have used it as a signal and influential factor that shapes a person's attitudes (e.g., Parameshwaran and Engzell, 2015). A vast body of literature shows that evaluators are not free of biases and signals are not necessarily true representations of the characteristics of the sender (Franke, Gruber, Harhoff, and Henkel., 2006). Therefore, we can expect the country of origin to influence the attitude of founders even if they are raised in another country and most importantly, it can affect perception toward the attitudes of those founders. ...
Purpose
For new ventures, access to entrepreneurship assistantship is the main source of growth and innovativeness. Accelerators, a growing provider of entrepreneurial resources, offer such assistantship. This study aims to identify several factors that might account for a startup’s acceptance of accelerator programs. Particularly, this paper examines the impact of a lead founder’s country of birth, gender and education on accelerator acceptance.
Design/methodology/approach
This study tests the framework with logit regression for a sample of 10,298 observations for startups in 166 countries over 2016–2018.
Findings
This study finds that entrepreneurs from developing countries are less likely to be accepted by accelerators than entrepreneurs from developed economies. Counterintuitively, this study also finds an advantage for female entrepreneurs in accelerator acceptance. Further, the results suggest a positive impact on education. Building on signaling theory, this paper argues and shows that accelerators do not evaluate applicants uniformly.
Practical implications
Our comparative study enhances business owners’ insight for application to entrepreneurial resources and has meaningful implications for women’s entrepreneurship. For policy-making purposes, this study offers more insight on economic development for entrepreneurs’ access to global resources.
Originality/value
Despite the extant literature demonstrating the benefits of accelerators, determinants of acceptance to these programs, particularly at the individual level, are underexplored. This is the first study that shows the rarely acknowledged link between a lead founder’s country of birth, gender and education level on accelerator acceptance. Here, this study extends entrepreneurship literature and shows some sources of variation in access to international accelerator programs.
... Capabilities, prior experiences and social skills of the management team, especially the founder, impact the development and implementation of future ideas (Goldman, 2008;Hsu, 2007;MacMillan, Zemann, & Subbanarasimha, 1987). Franke, Gruber, Harhoff and Henkel (2006) identify a preference bias for founders that are similar to personnel of the investor. Consequently, Damodaran (2009) recommends to perform two valuationsone where key personnel remains with the start-up and one where it leaves. ...
Corporate Venture Capital (CVC) is an established vehicle for collaboration among a corporation and start-ups. Through equity investments paired with access to resources, capabilities and expert networks, corporations aim at supporting start-up development. Although the efficacy of CVCs is broadly discussed in literature, CVCs are often treated as uniform vehicles. Little is known about the impact of a CVC’s strategic direction and organizational design on the performance of start-ups. Moreover, Corporate Accelerator (CA) is a rather new form of corporate start-up engagement. Due to its newness limited research is available and literature urges – among others – to compare CA with more established form of corporate start-up support, especially CVC. Following these identified research gaps the dissertation consists of two empirical sections. In the first section, the effect of a CVCs organization and strategic direction on start-up performance is evaluated. Using a hand-collected unique data-set of 210 start-ups under the management of 21 German CVCs, the study finds that organization of a CVC impacts the financial and strategic performance in multiple ways. Distinct hypotheses on portfolio size, concentration and fit, previous experience and CVC leadership are developed and tested empirically. The results show that CVC strategy and organization matter for start-up performance, however, disparate effects are observable for financial and strategic performance. Large portfolios enhance the performance of start-ups under CVC management, whereas both portfolio concentration and industry fit have a negative relationship with start-up performance. Moreover, more established CVCs support financial, yet impede strategic start-up performance. Lastly, it is detected that Previous industry experience of CVC personnel leads to financial start-up performance, whereas previous founder experience of CVC personnel strengthens strategic start-up performance. The second section aims at empirically reflecting the differences between CVC and CA, the start-ups under management and performance implications. The work is based on a novel multi-level and hand-collected dataset on financial and strategic performance covering 21 German CVCs with 210 start-ups and 15 German CAs with 132 start-ups. The results show that CVC and CA differ. CVCs tend to support older and further developed start-ups that operate more frequently in strategic proximity to the corporate parent, whereas CAs collaborate with younger and less mature start-ups across varying industries. In addition, CVCs stimulate start-up performance more than CAs do, even when matching CVC- and CA-managed start-ups based on their size and stage of development All in all, the work adds to literature in multiple ways as understanding of CVCs is deepened through a grounding in economic theories, uncovering of white spots determination of performance implications of a CVC’s strategic direction and organizational design and differentiation from a similar corporate venturing form, Corporate Accelerator. The work empirically supports that a differentiation of financial and strategic performance is required in corporate venturing research and sheds light on how CVCs should be organized to foster start-up performance. Moreover, it offers an enhanced understanding of CVC through an empirical comparison with the new phenomenon of CAs. Lastly, empirical evidence on CVC and CA is given based on a German dataset, in contrast to the majority of studies, being based on US data.
... A strategy also contains strategic planning that is ongoing, as detailed, namely: Division of work authority and respective responsibilities. [24] Here we will know with a question who? What is meant is who is the implementer or who is the planner. ...
... We summarize the main findings of this research in Table 1. In summary, the most important screening criteria include the entrepreneur and the management team (e.g., Franke et al. 2006Franke et al. , 2008Warnick et al. 2018), product and service offerings (e.g., Hoenig and Henkel 2015;Tyebjee and Bruno 1984), as well as the industry and market environment (e.g., Kollmann and Kuckertz 2010;Bachher and Guild 1996). Financial criteria, including venture performance measures, have been found to only play a minor role in the screening decision (e.g., MacMillan et al. 1987;Muzyka et al. 1996;Tyebjee and Bruno 1984). ...
We assess whether and how VC investors’ education and experience influence their screening decisions of potential investee candidates. Empirically, we perform an experimental choice-based-conjoint (CBC) analysis with 564 individual VC investors. Our results highlight that the level and field of education, as well as the decision maker’s investment and entrepreneurial experience, moderate the relative importance of different screening criteria. More specifically, we find that international scalability seems to become more important for decision makers with higher education and those with entrepreneurial experience. Whereas decision makers with a background in natural science focus on the value-added of the product or service, engineers seem to value a break even profitability and focus less on the management team. Investment experience, on the other hand, leads to a stronger focus on the management team. Our study contributes to the literature investigating the influence of human capital characteristics of the decision maker in venture financing. Practical implications exist for entrepreneurial ventures seeking financing and for risk capital investors making investments in such ventures.
... While experienced venture capitalists give more positive evaluations to projects with more cohesive management teams, less experienced VC investors focus more on team members' qualifications in their evaluations of investment. Other studies show that the investment decisions of venture capitalists are also influenced by their values (Matusik et al., 2008): sharing similar backgrounds and past work experiences with the entrepreneur/management could encourage further VC investments (Franke et al., 2006;Chen et al., 2009). Finally, some studies analysed the certification effect of the venture capitalists' reputations on the offer of VC financing and on the performances of their portfolios' companies. ...
The purpose of this report is to provide an overview of the recent trends of Venture Capital (VC) market in the European Union. In particular, it investigates and documents the characteristics of VC transactions, Venture Capitalists, and VC-backed firms, in the context of European Small and Medium-sized Enterprises (SMEs). Indeed, in recent years, the European Commission has devoted increasing attention to this area through relevant policy actions aiming at stimulating the adoption of different sources of external financing available to SMEs that find barriers to more traditional financing. In particular, the 2015 Capital Markets Union (CMU) Action Plan included among its key objectives the financing of innovation, start-ups and non-listed companies, also by supporting new Venture Capital investments. Moreover, the new 2020 CMU Action Plan further incentivises the adoption of alternative sources of funding for SMEs (see, for instance, Action 5). The increase in Venture Capital penetration in the EU market would lead to at least two complementary beneficial effects, i.e. the diversification of the funding portfolio of companies, and the professional support in their earlier stages of development to young and innovative SMEs, the backbone of the European economy. At the same time, being target of a VC investment could have implication on the SME status of the VC-backed company. Indeed, the current European Commission SME definition (Recommendation 2003/361/EC) sets size-based thresholds for a company to be considered an SME. If a firm is not autonomous, i.e. it is not controlled by third parties, the assessment on the size should be conducted also including the figures of other companies within the group of the assessed firm. Accordingly, if the Venture Capital investor acquires more than 50% of the company’s capital or voting rights through its investment, the target company itself, and the VC investor(s) are considered as a group and consequently, these companies may lose the SME status. Beside classifications, this may lead to a concrete impact on the VC-backed firm, which, by losing the SME status, would not be eligible for EC dedicated funding programs (e.g. Horizon 2020). The report focuses on different aspects related to the status of the VC market from 2008 to 2018. In particular, it provides evidence on (i) the evolution of Venture Capital investments; (ii) most relevant features of Venture Capital transactions; (iii) characteristics of firms targeted by Venture Capital investments; (iv) the impact of VC investments on measures of growth of target companies; (v) investment strategies of of venture capitalists in targeting firms; and, lastly, (vi) the implications of VC, and potential changes to the 50% threshold, for the current SMEs definition.
... Knowledge proximity, which is the extent to which an investment relates to the investor's field of expertise, might determine the type and scope of engagement for a portfolio company. Some studies, such as that of Franke et al. [42], have shown that in the preinvestment phase, the traditional venture financiers prefer to invest in startups founded by individuals with training in the same field. Likewise, in the postinvestment phase, research on the traditional risk investors has demonstrated that they engage more in industries in which they have prior experience [7]. ...
Equity crowdfunding has become a viable alternative to the traditional forms of financing technology startups. This survey-based two-study article aims to shed light on the prevalence of crowd equity investors’ postinvestment activities and the antecedents to these engagement activities. Our first study finds that most crowd equity investors engage with the startups in which they invest in some way. While the majority engage in low-involvement activities (e.g., word of mouth), a smaller number of crowd equity investors also engage in high-involvement activities (e.g., strategic advice). Our second study reveals that engagement in these activities is driven by investment-, investor-, and proximity-related factors. In particular, the amount of investment—despite its smallness compared with that in the traditional forms of funding—is a reliable antecedent of crowd equity investors’ engagement in postinvestment activities. Furthermore, age and geographic proximity are positively associated with low-involvement activities, whereas intrinsic motivation and personal proximity are positively linked to high-involvement activities. By providing insights into the prevalence of postinvestment activities in equity crowdfunding and their antecedents, this article contributes to the debate on the potential of equity crowdfunding to complement or even replace the traditional forms of funding technological innovation.
... Besides, various studies in entrepreneurial finance show that education and access to external financing are closely linked (e.g., Bates 1990;Carter et al. 2003;Coleman and Cohn 2000;Franke et al. 2006;Gartner et al. 2012). For example, Carter et al. (2003) demonstrate a positive relationship between the degree of education and financial resource acquisition of selfemployed individuals. ...
Bootstrap financing refers to measures that entrepreneurial ventures undertake to preserve liquidity (e.g., reducing expenses, collecting receivables, delaying payments, preselling). Prior research shows that bootstrap financing is an important enabler for the growth of resource-constrained early-stage ventures. However, little is known about the use of bootstrap financing in crises, during which the preservation of liquidity is particularly salient. We investigate the determinants of bootstrap financing in the 2020 COVID-19 crisis using a sample of 17,046 German entrepreneurial ventures. We formulate hypotheses about the determinants of bootstrap financing from a necessity, human capital, and opportunity cost perspective. Amongst others, our results show that the severity of the crisis for the venture, the level of private consumption, and self-employment experience are positively associated with an increased use of bootstrap financing measures. Our study contributes to the literature on bootstrap financing and illuminates how entrepreneurial ventures maintain liquidity in crises. JEL codes: G30, L26, M13.
... The latest theoretical reflections on VC decision-making cast doubts on the pure rationality (in the economic sense) of this phenomenon and suggest that the bounded rationality paradigm may offer new insight into the studied process. In this vein, Franke et al. (2006) showed that decision-makers are driven by similarity biases, favouring start-up teams with which they share similar characteristics in terms of education and previous professional experience. Baum and Silverman (2004) speculated that VC managers might be plagued by attribution errors, placing emphasis on people (not situations) as the causes of failures and thereby overestimating the degree of entrepreneurs' control over the enterprises. ...
The aim of this article is to explore the decision-making policies by Polish Venture Capital (VC) firms, with special focus on the perception of entrepreneurs. This paper presents the results of a conjoint analysis and assessment of the importance of select characteristics among entrepreneurs and the qualities of a team of founders comprising managers of VC firms. The data were collected via face-to-face interviews with 26 Venture Capitalists. In the conjoint experiment, six attributes were presented, among which three represented characteristics of the entrepreneur (his/her passion and experience) and the management team (experience and completeness) alongside three characteristics of the opportunity (readiness of the product/service, growth rate of the market, and innovativeness of the whole project). VC managers ranked the importance of eight characteristics of the entrepreneurs related to their decisions and assessed the functional composition of the team of founders. The results of the experiment show that venture capitalists (VCs) most strongly appreciate the readiness of the product and entrepreneur’s passion. However, their preferences varied across the sample. The results of the ranking also show that the VC managers highly value the honesty of the entrepreneur. VCs typically prefer a team of founders, rather than a single-person project, preferably consisting of persons at least familiar with the technology and the market. This study contributes significantly to the state-of-the-art, as research on VC investment policy (investment criteria) is relatively rare in Central and Eastern Europe, where the VC industry is starting to flourish.
This study analyses the venture capitalists’ evaluation of startups in the Indian context by using primary data obtained from a survey study of representatives drawn from the industry. A distinguishing feature of the study is the categorization of venture capitalists on the basis of their stage of financing for analyzing the nature of diversification prevalent in the industry, the rank order of risks as perceived by the different categories of venture capitalists, and their expected risk premium. The findings of the study suggest the existence of two broad categories of venture capitalists; those involved in early-stage financing and those who invested across the life stages of startups. Furthermore, results indicate that each of these two categories of venture firms attaches varying importance to the broad considerations that are known to impact a startup’s value, they are differently diversified, their rank order of perceived risks is different and so is the expected risk premium.
Understanding heuristics in stage financing is imperative, given the consequences of staging for both new venture entrepreneurs and VC investors. This study documents how entrepreneurs’ physical attractiveness affects VCs’ staging intensity during the early stages of the funding process, while taking into account the ethnic constellation of a given VC – entrepreneur dyad. Using a dataset for a representative sample of 231 European IT-ventures, the study finds that physical attractiveness of the lead entrepreneur and the ethnic constellation of a given VC-entrepreneur dyad independently and jointly affect a VC’s staging intensity during the early stages of the financing process. These findings were subjected to a two-stage least squares analysis and Heckman selection models.
Nowadays, fundraising is one of the most important issues for both Fintech investors and startups. The pattern of fundraising in terms of the "number and type of rounds and stages needed" is important. The diverse features and factors that could stem from Fintech business models which can influence success are the key issues in shaping these patterns. This study applied the top 100 KPMG Fintech startups' data to extract clusters and fundraising patterns using sequential pattern discovery for each cluster. This led to the extraction of seven distinct clusters using 3 different clustering algorithms from 3 to 7 different rounds of investment for each cluster. The proposed frequent patterns can assist both investors and Fintech startups to show the future fundraising pattern based on their new or current startup cluster type and the ongoing stages of development.
We integrate opportunity evaluation reasoning with affordance theory to develop a nuanced theoretical model of action orientation in entrepreneurial decision-making. We test our model with a conjoint experiment of 864 decisions made by 54 corporate venture capital (CVC) managers evaluating digital ventures for investment. Our findings provide evidence that CVC managers value two sources of digital affordances: the recombinability and the reprogrammability of digital technologies. The results show that CVC managers individuate affordance-based investment opportunities based on their personal and organizational background. We contribute to a fine-grained understanding of action potentials in the evaluation of opportunities and advance affordance theory through a cognitive judgment perspective.
Crowdlending for sustainable new ventures is situated between traditional investing and charitable giving, thereby attracting non-professional investors with different motivations. However, the current understanding of these different motivations related to crowdlending decisions is limited. Drawing on the theory of basic human values, the present article addresses the question of whether and how crowd investors differ regarding the factors that drive their crowdlending decisions for sustainable new ventures. Using a choice-based conjoint analysis followed by a latent class analysis, this study explores the preferences of 353 non-professional investors in response to project attributes associated with loan characteristics and sustainability impact goals. The results reveal four crowd investor segments with heterogeneous preference structures and highlight the role of human values to identify such segments. While the majority of crowd investors form their decisions around financial return rates, the segment of crowd investors characterized by high self-transcendence and low self-enhancement values focuses primarily on ecological impact goals. Surprisingly, crowd investors who prefer social over ecological impact goals are characterized by high self-enhancement values and thus appear to be motivated by self-interest. These insights are significant for sustainable entrepreneurs and platforms, helping them to better address the diverse audience in crowdlending.
Purpose
Existing literature shows that marketing capabilities of new ventures are critical success factors affecting venture capital funding, startup performance and business failure. The purpose of this study is to investigate whether venture capitalists reward extensive marketing strategies in their startup valuation and whether the marketing mix planning and early strategies on customer orientation predict long-term development of startups.
Design/methodology/approach
To address these gaps, this study investigate 107 business plans of new ventures which received venture capital based on these planning documents. The authors use computer-aided text analysis and regression analyses.
Findings
This study’s findings show that customer orientation has positive effects on new venture performance and intensive marketing mix planning increases the likelihood of survival. However, venture capitalists decrease their startup valuation when they read too much about customer orientation and operative marketing mix planning.
Originality/value
This study relies on unique internal documents and therefore provides valuable and new insights for research and practice. Further, this study investigate various short- and long-term effects from marketing and customer orientation for a startups’ development.
We examine the decision process of individuals evaluating whether to support an entrepreneurial endeavor. Such decisions are made by individuals under conditions of ambiguity and equivocality. Therefore, it is nearly impossible for resource providers to adopt a purely rational evaluative process in assessing a venture. Building on insights from sensemaking and social and cognitive psychology, we elaborate a theoretical model combining sensemaking, intuition, and deliberation to account for how entrepreneurial support decisions are made. The model reflects individual and social factors that impact this decision process and provides a basis for understanding entrepreneurial support decisions across diverse actors and contexts.
Investments are influenced by the cognitive biases and heuristics of investors in the face of a hyper-competitive market caused by capital overabundance pushing deal sizes, startup valuations, and deal activity. This exploratory study outlines the challenges, opportunities, current methods, and future potential of AI adoption in line with the VC investment funnel. A qualitative analysis was conducted based on 17 expert interviews with early-stage VC investors and academic researchers. The findings reveal that most firms do not yet leverage AI, even though they already adopt data-driven decision support, due to resource scarcity in terms of people, time, and budget. Those VC firms that already apply AI predominantly aim at making their sourcing and screening processes more efficient and increasing their portfolio diversity. The interviews also reveal that the number of VCs adopting AI will significantly increase in the next few years—independently of firm size and resource availability. The catalyst for this will be emerging third-party software providers offering affordable AI tools developed primarily to enhance the VC investment decision process.KeywordsVenture capital industryDecision-making processArtificial intelligenceCognitive biasesTechnology
Venture capitalists (VCs) closely evaluate the track record of entrepreneurs when screening new venture proposals for possible investment. There remains, however, ambiguity about how VCs perceive failure in the entrepreneurial journey. This study unveils how VCs evaluate past entrepreneurial failures. Through a conjoint experiment with 52 VCs, we find that past failures are viewed favorably. Entrepreneurs who failed are evaluated more positively than novices and entrepreneurs who only have a record of success. Education at a top-tier university moderates this relationship and leverages the positive perception of failure. Further, perceptions of entrepreneurs with a top-tiered education who failed are even better when VCs share a similar top-tier education.
We examine how status dynamics in heterogeneous evaluator groups affect the evaluation of a target venture where some evaluators resemble the venture team while some do not. Using data from a funding competition in China, we theorize and empirically show that the emergence of a status hierarchy among evaluator group members based on top‐university affiliation leads non‐top‐university members to favor top‐university venture teams by 1) increasing the visibility and positive value of top‐university affiliation as a quality signal and 2) suppressing challenging questions directed at top‐university teams. By introducing small group status dynamics as an explanation for similarity bias in venture evaluation, we contribute to the literature on resource mobilization in early‐stage entrepreneurship. Despite the wide use of heterogeneous teams in venture evaluation, similarity bias—a preference for venture teams that resemble the members of an evaluation group—is still prevalent. This study shows that, under certain conditions, heterogeneous evaluation teams might not be a solution for similarity bias. We identify a group‐level source of similarity bias—the emergence of a status hierarchy among evaluators based on affiliation with top universities—which makes top‐university affiliation a more salient and positive quality signal in venture evaluation, particularly for evaluators who are not affiliated with top universities.
Social impact incubators (SIIs) are a new type of incubator that support social enterprises (SEs) in their early business stages to foster and develop their hybrid objectives. However, research on SIIs is still scarce, and little is known about SIIs’ motives, supporting activities, and selection criteria. In investigating 71 SII decision makers, we find the societal duty motive stated as ‘most important’, while the financial motive is stated as ‘least important’. Furthermore, we identify the authenticity of the founding team and the importance of the societal problem addressed as SIIs’ most important selection criteria. However, significant heterogeneity exists within the group of SIIs with regard to their selection criteria. In particular, SIIs with strong innovation and societal duty motives stand out and differ in their SE selection criteria from other SIIs. Our results extend prior research on SIIs and contribute to the discussion on selection criteria of SE supporters.
Investing in early-stage companies is incredibly hard, especially when no data are available to support the decision process. Venture capitalists often rely on gut feeling or heuristics to reach a decision, which is biased and potentially harmful. This work proposes a new data-driven framework to help investors be more effective in selecting companies with a higher probability of success. We built upon existing interdisciplinary research and augmented it with further analysis on more than 600,000 companies over a 20-year timeframe. The resulting framework is therefore a smart checklist of 21 relevant features that may help investors to select the companies more likely to succeed.
Artificial intelligence is an emerging topic and will soon be able to perform decisions better than humans. In more complex and creative contexts such as innovation, however, the question remains whether machines are superior to humans. Machines fail in two kinds of situations: processing and interpreting soft information (information that cannot be quantified) and making predictions in unknowable risk situations of extreme uncertainty. In such situations, the machine does not have representative information for a certain outcome. Thereby, humans are still the gold standard for assessing soft signals and make use of intuition. To predict the success of startups, we, thus, combine the complementary capabilities of humans and machines in a Hybrid Intelligence method. To reach our aim, we follow a design science research approach to develop a Hybrid Intelligence method that combines the strength of both machine and collective intelligence to demonstrate its utility for predictions under extreme uncertainty.
B. Schneider's (1987) attraction-selection-attrition model and J. Pfeffer's (1983) organization demography model were used to generate individual-level and group-level hypotheses relating interpersonal context to recruitment, promotion, and turnover patterns. Interpersonal context was operationalized as personal dissimilarity and group heterogeneity with respect to age, tenure, education level, curriculum, alma mater, military service, and career experiences. For 93 top management teams in bank holding companies examined over a 4-yr period, turnover rate was predicted by group heterogeneity. For individuals, turnover was predicted by dissimilarity to other group members, but promotion was not. Team heterogeneity was a relatively strong predictor of team turnover rates. Furthermore, reliance on internal recruitment predicted subsequent team homogeneity. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Two experiments examined whether interpersonal complementarity or similarity influences people's satisfaction with dyadic interactions. Participants in complementary partnerships (submissive people with dominant partners, dominant people with submissive partners) reported more satisfaction than did those with similar partners. In Study 1
complementarity referred to the match between the participants' self-reported interpersonal style (dominant or submissive) and the role enacted by a confederate (dominant or submissive). In Study 2 participants interacted in pairs, and
complementarity referred to the match between one participant's interpersonal goals and the other's overt behavior. Participants whose goals were complemented by their partners' behavior were more satisfied with the interaction than those whose goals were not. In both studies satisfied participants perceived their partners as similar to themselves. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Offering a unifying theoretical perspective not readily available in any other text, this innovative guide to econometrics uses simple geometrical arguments to develop students' intuitive understanding of basic and advanced topics, emphasizing throughout the practical applications of modern theory and nonlinear techniques of estimation. One theme of the text is the use of artificial regressions for estimation, reference, and specification testing of nonlinear models, including diagnostic tests for parameter constancy, serial correlation, heteroscedasticity, and other types of mis-specification. Explaining how estimates can be obtained and tests can be carried out, the authors go beyond a mere algebraic description to one that can be easily translated into the commands of a standard econometric software package. Covering an unprecedented range of problems with a consistent emphasis on those that arise in applied work, this accessible and coherent guide to the most vital topics in econometrics today is indispensable for advanced students of econometrics and students of statistics interested in regression and related topics. It will also suit practising econometricians who want to update their skills. Flexibly designed to accommodate a variety of course levels, it offers both complete coverage of the basic material and separate chapters on areas of specialized interest.
The purpose of this work is two-fold. The first is to stimulate an interest in modeling the management of venture capital funds. The second is to provide entrepreneurs with insights which can help in their dealings with venture capitalists. With respect to the first objective, the value of the study may perhaps be as much in what it did not achieve as in what it did achieve. A five-step model of the activities of venture capitalists has been developed. The model, however, is highly descriptive and lacks a theoretical basis. Moreover, the model is admittedly simplistic. The second objective is to provide potential entrepreneurs with insight into the way venture capitalists manage their funds. These insights are also valuable to managers in large companies who wish to improve their allocation of resources to internal ventures competing for new business development funds.
The formal practice of forecasting and planning (F&P) has risen to prominence within a few decades and now receives considerable attention from both academics and practitioners. This paper explicitly recognizes the nature of F&P as future-oriented decision making activities and, as such, their dependence upon judgmental inputs. A review of the extensive psychological literature on human judgmental abilities is provided from this perspective. It is argued that many of the numerous information processing limitations and biases revealed in this literature apply to tasks performed in F&P. In particular, the "illusion of control," accumulation of redundant information, failure to seek possible disconfirming evidence, and overconfidence in judgment are liable to induce serious errors in F&P. In addition, insufficient attention has been given to the implications of numerous studies that show that the predictive judgment of humans is frequently less accurate than that of simple quantitative models. Applied studies of F&P are also reviewed and shown to mirror many of the findings from psychology. The paper subsequently draws implications from these reviews and suggests reconceptualizing F&P through use of decision-theoretic concepts. At the organizational level this involves recognizing that F&P may perform many, often conflicting, manifest and latent functions which should be identified and evaluated through a multi-attribute utility framework. Operationally, greater use should be made of sensitivity analysis and the concept of the value of information.
Previous studies of venture capital investment criteria, which have tended to utilize traditional Likert-scaled survey methods, have produced some general findings which indicate that the “human factor” is of utmost importance. However, virtually all of these studies have been undertaken with U.S.-based venture capitalists. In addition, the studies have generally been exploratory and have assumed a single hierarchy of decision criteria in all cases and across all venture capitalists. We do not accept that this is valid; therefore, our study tested this assumption by investigating the trade-offs made by venture capitalists in Europe.
Many decisions are based on beliefs concerning the likelihood of uncertain events such as the outcome of an election, the guilt of a defendant, or the future value of the dollar. Occasionally, beliefs concerning uncertain events are expressed in numerical form as odds or subjective probabilities. In general, the heuristics are quite useful, but sometimes they lead to severe and systematic errors. The subjective assessment of probability resembles the subjective assessment of physical quantities such as distance or size. These judgments are all based on data of limited validity, which are processed according to heuristic rules. However, the reliance on this rule leads to systematic errors in the estimation of distance. This chapter describes three heuristics that are employed in making judgments under uncertainty. The first is representativeness, which is usually employed when people are asked to judge the probability that an object or event belongs to a class or event. The second is the availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development, and the third is adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available.
Researchers studying the decision-making behaviors of venture capitalists should be aware of potential biases and errors associated with self-reported data, especially in light of this study's findings that venture capitalists exhibit limited introspection into the policies they "use" to assess likely profitability. Venture capitalists have a tendency to overstate the least important criteria and understate the most important criteria compared to their "in use" decision policies. This study will increase awareness of the gap between venture capitalists' "in use" and "espoused" decision policies and therefore encourage caution in generalizing "espoused" policies to venture capitalists' actual decisions.
We examined the impact of surface-level (demographic) and deep-level (attitudinal) diversity on group social integration. As hypothesized, the length of time group members worked together weakened the effects of surface-level diversity and strengthened the effects of deep-level diversity as group members had the opportunity to engage in meaningful interactions.
This paper proposes an expanded view of industrial buyer-seller similarity. Past research indicates that business buyers may judge their degree of similarity with a salesperson in terms of observable characteristics (physical attributes and behavior) and internal characteristics (perceptions, attitudes, and values).
Decision making is central to the ability of venture capitalists to predict those new ventures likely to succeed, yet most studies into their decision making use post-hoc methodologies that may generate biased results. People are poor at introspection and often suffer from recall and post-hoc rationalization biases among others. Therefore, researchers should consider using real-time methods that eliminate many of these biases. One such method is conjoint analysis. The purpose of this paper is to reveal the potential that conjoint analysis has to: (1) improve the validity of prior research into VCs' decision making; and (2) act as a catalyst for adopting conceptual tools from other disciplines that can be tested empirically. Both these functions have the purpose of increasing one's insight into the assessment policies of VCs.
In this study salience, importance, and multidimensional aspects of spontaneous social identities were examined. A Social Identity Survey was developed and administered to an ethnically diverse sample of American undergraduate students. Freely generated, social identities were rank ordered for importance and rated along four conceptually-derived dimensions: emotion, evaluation, importance, and stability. Results showed pattern differences among three groups of highly salient social identities: (a) gender, religion, and ethnicity; (b) academic major and student; and (c) hobbies and athletics. Ethnic differences suggest that mainstream Americans attributed less importance to the gender and ethnic identities in comparison with Asians and Hispanics.
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Decision-making processes employed by venture capitalists (VCs) varying in experience were compared. Results show that for relatively inexperienced VCs, increasing experience is associated with improvements in reliability and performance relative to a benchmark (a bootstrapping model). Beyond a specific point, however, further gains in experience are associated with actual reductions in reliability and performance. Thus, greater experience at the venture capital task may not always result in better decisions.
This is a book about the formation, development, and success or failure of new high technology companies, focusing on those that grew under the auspices of entrepreneurs from Massachusetts Institute of Technology (MIT) in Boston at the end of World War Two. Trained in high-technology in MIT's labs and academic departments or in the local industrial marvel that became known as the "Route 128 phenomenon", these entrepreneurs took their technical and innate skills with them to found their own new companies. The book is based on extensive empirical research on these firms conducted over a period of twenty-five years and much previously written work on the subject, and is the culmination of such earlier work and synthesized findings. It centers on people, technology, money, and markets, and its main goal is to provide insights that may eventually contribute to fulfilling other entrepreneurs' dreams and other communities' hopes. The book chapters comprise three connected sections - treating birth, transition and growth, and success or failure.
This paper examines the significance of the concept of culture for organizational analysis. The intersection of culture theory and organization theory is evident in five current research themes: comparative management, corporate culture, organizational cognition, organizational symbolism, and unconscious processes and organization. Researchers pursue these themes for different purposes and their work is based on different assumptions about the nature of culture and organization. The task of evaluating the power and limitations of the concept of culture must be conducted within this assumptive context. This review demonstrates that the concept of culture takes organization analysis in several different and promising directions.
Venture capitalists (VCs) are considered experts in identifying high-potential new ventures—gazelles. VC-backed ventures survive at a much higher rate than those ventures backed by other sources Kunkel and Hofer 1991, Sandberg 1986 and Timmons 1994. Thus, the VC decision process has received tremendous attention within the entrepreneurship literature. Nonetheless, VC-backed firms still fail at a surprisingly high rate (20%). Moreover, another 20% of the VC's portfolio fails to provide any return to the VC. Therefore, there is room for improvement in the VC investment process.
Introduction, 99. — I. Some general features of rational choice, 100.— II. The essential simplifications, 103. — III. Existence
and uniqueness of solutions, 111. — IV. Further comments on dynamics, 113. — V. Conclusion, 114. — Appendix, 115.
A questionnaire study of 129 members of 20 multidisciplinary project teams examined the relationship between informational dissimilarity and both team identification and organizational citizenship behavior (OCB) for individuals working under different interdependence configurations. Results revealed that under congruent low-low and high-high combinations of task and goal interdependence, informational dissimilarity was unrelated to team identification arid OCB. By contrast, under incongruent low-high and high-low combinations of task and goal interdependence, informational dissimilarity was negatively related to team identification and OCB. Team identification partially mediated the relationships between the predictors and OCB. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Presents examples in which a decision, preference, or emotional reaction is controlled by factors that may appear irrelevant to the choice made. The difficulty people have in maintaining a comprehensive view of consequences and their susceptibility to the vagaries of framing illustrate impediments to rational decision making. However, experimental surveys indicate that such departures from objectivity tend to follow regular patterns that can be described mathematically. The descriptive study of preferences also challenges the theory of rational choice, as it is often unclear whether the effects of decision weights, reference points, framing, and regret should be considered as errors or biases or whether they should be accepted as valid elements of human experience. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Experimental research on intergroup discrimination in favor of one's own group is reviewed in terms of the basis of differentiation between in-group and out-group and in terms of the response measure on which in-group bias is assessed. Results of the research reviewed suggest that (a) factors such as intergroup competition, similarity, and status differentials affect in-group bias indirectly by influencing the salience of distinctions between in-group and out-group, (b) the degree of intergroup differentiation on a particular response dimension is a joint function of the relevance of intergroup distinctions and the favorableness of the in-group's position on that dimension, and (c) the enhancement of in-group bias is more related to increased favoritism toward in-group members than to increased hostility toward out-group members. Implications of these results for positive applications of group identification (e.g., a shift of in-group bias research from inter- to intragroup contexts) are discussed. (67 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Used a modified Brunswik lens model approach (E. Brunswik, 1956) to investigate the influence of candidate (CD) nonverbal behavior (NVB) on graduate interviewer (GDI) impression formation in the real-life graduate selection interviews. 38 GDIs completed assessments on 330 CDs for 14 diverse occupational groups. GDI outcome decisions were substantially linearly dependent on impressions of CD personality, which were in turn linearly dependent on CD facial area NVBs. Overall evaluations correlated
r = .50 with ratings of similarity-to-self and
r = .64 with ratings of personal liking, indicating the pervasive bias of these 2 factors. Prototype bias had a marked impact on GDI decision making. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Argues that demography, the length of service distribution of the work force, is an important explanatory variable in organizational research. Demography is largely a function of factors such as the growth and structure of the organization, employment practices related to compensation and turnover, and unionization. In turn, organizational demography is hypothesized to have effects on (1) the frequency and type of administrator succession; (2) performance, adaptability, and innovation; (3) the form of control employed; (4) the amount and form of interorganizational linkages and transaction patterns across organizations; (5) cohort identity and intercohort conflict; (6) the distribution of power across cohorts; and (7) mobility aspirations and expectations resulting from different career processes. Issues related to the measurement of demography and implications for research in organizational behavior are discussed. (5 p ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
This study explores the construct of interorganizational similarity in business orientation between manufacturers and distributors. Drawing on Social Identity Theory, the authors develop hypotheses concerning the outcomes of similarity on the relationship. In particular, they argue that relationship effectiveness for the manufacturer is positively affected by similarity in business orientation through the mediating construct of cooperation. An empirical study of more than 200 business relationships provides support for the theoretical reasoning.
Strategic management researchers are showing increased interest in the cognitions of strategic decision-makers. In this article, the importance of strategic cognitions is discussed and research on a number of major topics within the cognitive perspective is summarized. the paper concludes with an integrative model of cognitions in strategic decision making. This model provides the basis for questions for future research.
Decision-making processes employed by venture capitalists (VCs) varying in experience were compared. Results show that for relatively inexperienced VCs, increasing experience is associated with improvements in reliability and performance relative to a benchmark (a bootstrapping model). Beyond a specific point, however, further gains in experience are associated with actual reductions in reliability and performance. Thus, greater experience at the venture capital task may not always result in better decisions.
What decision criteria do venture capitalists (VCs) use to make their investment decisions? This question has received much attention within entrepreneurship literature (i.e.,Wells 1974; Poindexter 1976; Tyebjee and Bruno 1984; MacMillan, Seigel, and Subba Narasimha 1985; MacMillan, Zeman, and Subba Narasimha 1987; Robinson 1987; Timmons et al. 1987; Sandberg, Schweiger, and Hofer 1988; Hall and Hofer 1993; Zacharakis and Meyer 1995) for a number of reasons. First, VC-backed ventures achieve a higher survival rate than non-VC-backed businesses (Kunkel and Hofer 1990; Sandberg 1986; Timmons 1994). Second, a better understanding of the decision process may lead to even better survival rates. Finally, entrepreneurs seeking venture funding benefit if they understand what factors are most important to the VC.
A questionnaire was administered to one hundred venture capitalists to determine the most important criteria that they use to decide on funding new ventures. Perhaps the most important finding from the study is direct confirmation of the frequently iterated position taken by the venture capital community that above all it is the quality of the entrepreneur that ultimately determines the funding decision. Five of the top ten most important criteria had to do with the entrepreneur's experience or personality. There is no question that irrespective of the horse (product), horse race (market), or odds (financial criteria), it is the jockey (entrepreneur) who fundamentally determines whether the venture capitalist will place a bet at all.
This paper examines a survey of thirty United Kingdom Venture Capital funds, representing the upper end of the size spectrum of the industry. The survey identified the techniques used by Venture Capitalists in the appraisal of investment proposals. Attention is drawn to the difficulties associated with the information asymmetry facing potential investors. There is a scrutiny of the due diligence strategy employed by investors in proposals requiring finance that exhibit the distinctive characteristics of start-up and development.The survey responses demonstrate the lack of precision of the appraisal process and advocate more accurate evaluation procedures, which may result in supplementary investment opportunities becoming acceptable.
This article described three heuristics that are employed in making judgements under uncertainty: (i) representativeness, which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could improve judgements and decisions in situations of uncertainty.
This article described three heuristics that are employed in making judgements under uncertainty: (i) representativeness,
which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process
B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a
class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical
prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead
to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could
improve judgements and decisions in situations of uncertainty.
Thesis (Ph. D.)--University of Texas at Austin. Vita. Includes bibliographical references (leaves 225-232).
Thesis--Carnegie-Mellon University. Includes bibliographical references (leaves [219]-[221]). Photocopy of typescript.
Also on microfilm. Thesis (Ph. D.)--New York University, Graduate School of Business Administration. New York University, Graduate School of Business Administration Library.