No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
Entrepreneurial Rhetoric and Business Plan Funding
Abstract
How entrepreneurs disclose the blemishes of a new venture to investors may be an indicator of relative riskiness and thus may predict how much funding a venture receives. Drawing from venture funding research, the authors propose that hardship rhetoric will have a curvilinear relationship with investment received by a venture. This hypothesis is supported by an analysis of rhetoric reflecting hardship in the memoranda and business plans of 86 high-technology ventures. In addition, the authors find that concrete language in memoranda is positively related to the amount of capital raised. In sum, this study presents the first examination of how the language used in business plans and communications with potential investors influence venture fundraising.
... Financial capital is an essential factor for entrepreneurial existence and progress (Florin et al., 2003). The problem of insufficient capital is an open truth which the entrepreneurs face for nurturing the idea they have developed or for further developing and expanding the business (Allison et al., 2014). The problem of not getting loans from traditional institutions like banks etc. is evident in India. ...
The purpose of this paper is to connect the concepts of crowdfunding with entrepreneurship and how blockchain technologies can be introduced for the safety of the business and speedy transactions. The source of raising funds usually for business start-ups has expanded with most businesses using crowdfunding platforms to raise funds as it is economical and straightforward in nature. A model has been framed which describes an approach by which a start-up can connect to crowdfunding for its initial finances. A systematic and comprehensive literature review was undertaken to study the research done till now. To understand the current scenario the trend and future of this concept, Google Trends was used putting keywords. The various stakeholders in the transaction like investors, entrepreneurs, customers, and crowdfunding platforms are interconnected for timely and safe transactions. The conceptual framework proposed which provides a solution to the problems linked to crowdfunding through the use of blockchain.
... From a practical point of view, our results suggest that this is even more so the case for social entrepreneurs and that linguistic style matters more for them than commercial entrepreneurs. In addition to being required to emphasize pro-social content in their campaign pitches (Allison et al., 2014), social entrepreneurs should pay attention to their linguistic style when appealing for resources. Even though social entrepreneurs typically raise relatively small sums of money, it is particularly important for them to provide concrete and precise information, as well as build personal rapport with the audience by sharing personal experiences and using a highly interactive style (asking a series of questions rather than presenting statements) (Parhankangas and Renkob, 2015). ...
Purpose
The purpose of this study is to identify the ways in which social entrepreneurs use rhetoric to establish legitimacy for themselves and their ventures. This is done by examining interviews with 19 social entrepreneurs in the city of Istanbul, Turkey. Most entrepreneurship studies are rooted in a positivist paradigm, but as there is need for qualitative research in entrepreneurship that allows for an in-depth study of a given phenomenon, the life story method is used as a methodological tool as scholars in rhetoric, technical and professional communication have pointed to narratives as viable sites of study.
Design/methodology/approach
This study used a linguistic focus on entrepreneurship research, thereby contributing to a growing body of literature and responding to Lounsbury and Glynn’s call for “a more ethnographic approach to entrepreneurial stories” to better understand how entrepreneurs use stories as a mechanism for resource and legitimacy acquisition.
Findings
This paper sought to identify the ways in which social entrepreneurs establish legitimacy for their ventures among various stakeholders, including investors as well as employees, customers and community members. This study aimed to investigate this particular field because, although there has been a recent growth in social entrepreneurial activity in the context of developing nations, the field is still emerging as an area for academic inquiry. Based on interviews with 19 social entrepreneurs in the city of Istanbul, Turkey, four key rhetorical strategies used to establish the legitimacy of social ventures among various stakeholders are identified.
Research limitations/implications
This study addresses issues related to entrepreneurship from a rhetorical perspective and helps explain the mechanisms through which entrepreneurial phenomena occur. With only 19 life story interviews acquired mostly through referrals, it is possible that the study did not have access to a sufficiently diverse group of social entrepreneurs. Also, having used a snowball sample, it is possible that isolated members of the community were under-sampled, whereas others who may have more extensive contacts and acquaintances were oversampled.
Practical implications
This research has implications for practice as well. New venture founders who enter into conversations with stakeholders can use this typology to assess and improve the language they use to claim legitimate distinctiveness.
Social implications
In addition to its theoretical implications, this research also has normative implications for social entrepreneurs. First, and most generally, findings suggest that social entrepreneurs should approach narrative construction and deployment purposively, not haphazardly. Crafting the narratives used to communicate about the key facets of a social venture to stakeholders is not “just” storytelling; rather, it is an activity that can have significant implications for a social venture’s ability to acquire resources. Second, beyond merely being conscious of narratives, social entrepreneurs also should not underemphasize the importance of being strategic about how they are used to communicate to audiences. In particular, it is important for entrepreneurs to realize that as powerful as their social-good narrative might be, not every audience wants to hear it.
Originality/value
This study addresses issues related to entrepreneurship from a rhetorical perspective and helps explain the mechanisms through which entrepreneurial phenomena occur. By integrating a rhetorical analysis with reflexive accounts from entrepreneurs, this work directly engages with Downing’s (2005) call to use such an approach to develop an enriched account of the duality of structure and agency in entrepreneurial endeavors. In doing so, it also responds to the call to challenge elite functionalist discourses in entrepreneurship research and put forward a view on entrepreneurial performance that acknowledges the socially dependent and constructed nature of such activity. This research has implications for practice as well. New venture founders who enter into conversations with stakeholders can use this typology to assess and improve the language they use to claim legitimate distinctiveness. The typology may, for example, help entrepreneurs who are preparing a business plan or a pitch for investors.
... While many business angels have financial goals, some investors provide such capitals for having a good feeling [1]. It was also seen in this research that business angels have different motivations to participate in a business; some seek profit or want to complete the value chain of their current companies, while some are merely looking for doing a socially beneficial job. ...
... Future research could build on our work by replicating the rhetoric patterns we examine in a number of additional research contexts where leadership language may influence key performance outcomes. For example, scholars have previously examined the influence of entrepreneurial rhetoric and business plan funding ( Allison et al., 2014). Future work could examine forms of leadership and orientation rhetoric to better understand why some business plans receive favor over others in business plan competitions as well as in competitive jockeying for venture capital funding. ...
Rewards based crowdfunding (where individuals provide funding for a campaign in exchange for a pre-specified reward) represents one of the largest forms of crowdfunding to date. While an emerging stream of research examines how the rhetoric used in crowdfunding campaigns impacts funding success, a number of studies examining language used in crowdfunding have only been explored in the context of social crowdfunding campaigns that rely on very different audiences, funding amounts, and project goals. To build knowledge surrounding the relationship between the rhetoric used in rewards-based crowdfunding and potential campaign success we replicate a number of rhetoric approaches previously examined in social contexts. Specifically, we examine the efficacy of charismatic rhetoric, political rhetoric, entrepreneurial orientation rhetoric, and virtue rhetoric in a sample of 1000 campaigns drawn from Kickstarter. Our replication results reveal relatively little consistency across contexts underscoring the value of repli-cation to understand boundary conditions of important entrepreneurial phenomena.
... We measured the intrinsic language cue items, human interest language and diversity language, by drawing on research in rhetorical analysis. This research originated to measure the persuasive language of politicians (Hart, 1984(Hart, , 2002 but has spread to the management literature to explain how the language in business plans may influence potential investors, how leaders' language may motivate their followers, and how language in corporate communications may influence market participants (Allison, McKenny, & Short, 2014;Shamir, Arthur, & House, 1994;Short & Palmer, 2008). Human interest language is operationalized using the HUMAN INTEREST dictionary developed and validated by Hart (1984Hart ( , 2001Hart ( , 2010 to assess the extent to which a narrative concentrates on people and their activities. ...
Microloans garnered from crowdfunding provide an important source of financial capital for nascent entrepreneurs. Drawing on cognitive evaluation theory, we assess how linguistic cues known to affect underlying motivation can frame entrepreneurial narratives either as a business opportunity or as an opportunity to help others. We examine how this framing affects fundraising outcomes in the context of prosocial lending and conduct our analysis on a sample of microloans made to over 36,000 entrepreneurs in 51 countries via an online crowdfunding platform. We find that lenders respond positively to narratives highlighting the venture as an opportunity to help others, and less positively when the narrative is framed as a business opportunity.
Despite increased interest in examining the factors that influence crowdfunding success, the effects of community context have been relatively unexamined. We address this void by examining the role of cultural context in crowdfunding success. Our unique data set of crowdfunding projects to “save the local theater” are homogenous in their goal, allowing us to test whether crowdfunding campaigns in certain communities lead to better funding outcomes than others. Theoretically, our results suggest the need for further integration of community and cultural constructs into models of venture funding, as such variables may have more relevance than previously believed.
While a great deal of research has investigated strategies for increasing job seekersí initial attraction
to organizations, far less is known about how job seekers respond to recruitment activities after
application submission. We draw from signaling, uncertainty reduction, and uncertainty management
theories to develop a conceptual model of the relationship between recruitment interactions (contact
episodes) after application submission and organizational attraction. We test this model in three
independent studies with data collected at multiple time periods. Study 1 employed a time-lagged
research design with actual job seekers. Findings showed that justice perceptions associated with
recruitment interactions influence organizational attraction indirectly and directly via positive
relational certainty (i.e., reduced uncertainty regarding how organizational relations might be upon
entering the organization). Study 2 used a controlled experimental design to provide additional
evidence of the relational certainty mechanism through which justice signals influence attraction.
Finally, Study 3 incorporated a longitudinal (repeated measures) design to examine reactions to
recruitment interactions across 10 weeks. Results indicated that the relationship between justice
signals and organizational attraction via positive relational certainty is dynamic in nature, suggesting
that organizations should carefully manage their communications throughout the recruitment process.
Applying individual-level constructs to higher levels of analysis can be a fruitful practice in organizational research. Although this practice is beneficial in developing and testing theory, there are measurement and validation concerns that, if improperly addressed, may threaten the validity and utility of the research. This article illustrates how computer-aided text analysis might be utilized to facilitate construct elevation while ensuring proper validation. Specifically, we apply a framework to develop organizational-level operationalizations of individual-level constructs using the psychological capital construct as an example.
Graphic novels have been increasingly incorporated into business communication forums. Despite potential benefits, little research has examined the merits of the graphic novel approach. In response, we engage in a two-study approach. Study 1 explores the potential of graphic novels to affect learning outcomes and finds that the graphic novel was related to high levels of learning experiences. Study 2 compares the impact of graphic novels with that of traditional textbooks and finds that verbatim recognition was superior with graphic novel texts. Overall, we provide the first comprehensive examination of the graphic novel as a tool for effective business communication.
DICTION is a computer-aided content analysis program grounded in a number of theoretical bases in linguistic research. DICTION has a number of attractive features that could be used to analyze unique elements of language in narrative texts germane to strategic management research. The authors apply the DICTION software to a sample of mission statements from 408 Association to Advance Collegiate Schools of Business colleges of business with a focus on gaining insights concerning how DICTION can be used in strategic management research utilizing content analysis. They find significant differences in word usage in mission statements based on organizational characteristics, including business school performance. They conclude with suggestions for future research.
Results of a two-year inductive field study of British ventures show that entrepreneurs are more likely to acquire resources for new ventures if they perform symbolic actions—actions in which the actor displays or tries to draw other people's attention to the meaning of an object or action that goes beyond the object's or action's intrinsic content or functional use. We identify four symbolic action categories that facilitate resource acquisition: conveying the entrepreneur's personal credibility, professional organizing, organizational achievement, and the quality of stakeholder relationships. Our data show that entrepreneurs who perform a variety of symbolic actions from these categories skillfully and frequently obtain more resources than those who do not. Our data also suggest three factors—structural similarity, intrinsic quality, and uncertainty—that moderate the relationship between symbolic management and resource acquisition. We theorize how the various symbolic action categories shape different forms of legitimacy that help entrepreneurs acquire resources.
Construct validity continues to pose challenges in the organizational sciences. To capture difficult-to-measure constructs of interest, researchers have often relied on content analysis. One content analysis technique, computer-aided text analysis (CATA), is particularly attractive because of the ability to process large samples with high speeds and reliabilities. Unfortunately, inconsistent guidance exists to guide researchers through the use of this tool in a manner compatible with accepted methods used to validate constructs in a rigorous manner. The authors review research using content analysis to examine the extent to which such studies integrate methods for assessing content, external, discriminant, and predictive validity. To provide direction for organizational researchers interested in using CATA to measure theoretically based constructs relevant to the management field, they suggest a number of possible procedures to enhance construct validity. They illustrate these procedures using the construct of entrepreneurial orientation.
Adopting a narrative approach to resource acquisition research, we examine the effects of storytelling on a firm's ability to secure capital. We argue that narratives help leverage resources by conveying a comprehensible identity for an entrepreneurial firm, elaborating the logic behind proposed means of exploiting opportunities and embedding entrepreneurial endeavors within broader discourses. Qualitative analyses of all 1996-2000 initial public offering prospectuses in three high-tech industries reveal how identity constructions, story elaboration, and contextual embedding are invoked within narratives. Our quantitative findings show how these aspects of an entrepreneurial narrative impact resource acquisition net of previously emphasized factors.
Using organization theory, the properties of emergingorganizations are explored, as well as the opportunities for further researchin this area. Understanding the properties that an organization possesses as itis created will aid in identifying a framework for determining whenorganization creation may occur. Previous research has often focused only onstructure or on process -- this framework attempts to integrate theseapproaches. McKelvey's definition of organization is used to identify theproperties of emerging organizations. These properties are intentionality,resources, boundaries, and exchange. They represent the minimum characteristicsnecessary for identifying the existence of an organization, and help to focuson the interactions of agents and the environment. These characteristics may not become visible at the same time. Consequently,choosing one particular property as the sampling variable can dramaticallyimpact the point at which newly created organizations are identified. The useof these four properties will impact the methods and theory in organizationtheory and entrepreneurship. The use of each property to identify nascentorganizations is illustrated, and examples of previous research utilizing theseproperties are provided. Focusing on the period when a preorganizationmoves to a new organization will help to better explain the concept ofemergence and the manner in which organizations come into existence.(SRD)
Empirical findings from publicly traded firms and behavioral theory arguments suggest a positive influence of resource slack on financial performance. While this area has remained unexplored in privately held firms, conceptual arguments indicate that resource constraints may serve to enhance performance. Longitudinal data on 900 privately held firms confirm the differential influence of forms of slack on performance. Results indicate that a combination of behavioral and resource-constraints arguments are necessary to explain the slack-performance relationship in privately held firms.
The factors leading nascent entrepreneurs to expend effort writing business plans are examined and the effect such planning has on new organizations is considered. This is part of a larger consideration within institutional theory about whether or not conformity leads to profitability or survival. There were 396 nascent Swedish entrepreneurs investigated over a four consecutive six-month periods. Both the production of the plan and the outcomes were examined. New organizations are subject to institutional pressure to produce written business plans - they are expected to plan, they imitate other successful organizations, or they are told to plan. The findings show that institutional variables (such as coercion and imitation) predict the likelihood for new organizations to write business plans. The study's results are more in line with institutional predictions and are contrary to rationalist predictions of planning-performance. Conclusions indicate that writing a business plan has no significant effect on the survival or profitability of the new organization. (TNM)
We explore a well-known instance of fast decision making under high uncertainty, venture capital (VC) opportunity screening. We analyze a sample of 722 funding requests submitted to an American VC firm and evaluate the influence of the form of the submission and content of business planning documents on VC funding decisions. We improve on prior literature by a) using a large sample of known representativeness, b) relating request characteristics to actual VC decisions, and c) developing an inferential logic that takes account of the multiple sources of information to which VCs have access. We find that the presence of planning documents and some information contained therein are weakly associated with VC funding decisions. Based on our inferential strategy, we find that this information is learned independently of its inclusion in the business planning documents. Copyright © 2009 John Wiley & Sons, Ltd.
Explaining how entrepreneurs overcome information asymmetry between themselves and potential investors to obtain financing is an important issue for entrepreneurship research. Our premise is that economic explanations for venture finance, which do not consider how social ties influence this process, are undersocialized and incomplete. However, we also argue that organization theoretic arguments, which draw on the concept of social obligation, are oversocialized. Drawing on the organizational theory literature, and in-depth fieldwork with 50 high-technology ventures, we examine the effects of direct and indirect ties between entrepreneurs and 202 seed-stage investors on venture finance decisions. We show that these ties influence the selection of ventures to fund through a process of information transfer.
Business plans are widely spread among new businesses, and they are supported by various universities, governmental assistance agencies, management consultants and a wide array of literature. Business plans are often taken for granted as highly useful tools that should be frequently updated and used. This study is based on data from six companies and their environments, over five years, using several forms of data collection such as interviews, observations, and archival data. In contrast to previous studies, we found that initial conformity to business plan norms gradually and without exception lead to loose coupling. Entrepreneurs who wrote business plans never updated or rarely referred to their plans after writing them.
The secrets of a crop’s behaviour - past, present and future - are contained in its chromosomes. Their structure provides a unique continuity with, and hence a vital record of, its past, as well as containing the information of the successful cultivars of today. Chapter 1, on the evolutionary history of wheat, and Chapter 6, on its genetic structure, have already referred to the chromosomes. Other chapters have mentioned the chromosomes in passing, insofar as they relate to the subjects considered, but here the chromosomes are the main subject. This chapter describes the results of many cytological, cytochemical, cell biological, molecular and biochemical studies which together have revealed the chromosomes - nuclear, chloroplast and mitochondrial - and physical and chemical structures, and as complex informational molecules with intricate organization. An attempt will be made to explain or suggest how knowledge of the structure and organization of chromosomes relates to other interests, and how it can provide new insights into chromosome history, useful new means of handling them in breeding programmes and a novel understanding of how their genetic behaviour is controlled.
Earnings press releases are the primary mechanism by which managers announce quarterly earnings and make other concurrent disclosures to investors and other stakeholders. A largely unexplored element of earnings press releases is the language that managers use throughout the press release, which we argue provides a unifying framework for these disclosures and an opportunity for managers to signal, both directly and more subtly, their expectations about future performance. We analyze the full texts of approximately 23,000 earnings press releases issued between 1998 and 2003 and examine whether the language used in these earnings press releases provides a signal about expected future firm performance and whether the market responds to this signal. Using categories derived from linguistic theory, we count words characterized as optimistic and pessimistic and construct a measure of managers' net optimistic language for each earnings press release. We find that this measure is positively associated with future return on assets and generates a significant market response in a short window around the earnings announcement date. We include in our models the earnings surprise as well as other quantifiable, concurrent disclosures identified in prior research as associated with the market's reaction to earnings press releases. Our results support the premise that earnings press release language provides a signal regarding managers' future earnings expectations to the market and that the market responds to this signal. We interpret our evidence to suggest that managers use language in earnings press releases to communicate credible information about expected future firm performance.
This article acknowledges the importance of achieving confidence in partner co-operation within the venture capitalist (VC)-entrepreneur relationship. The entrepreneur and the VC need to balance the level of control and trust building mechanisms so that the optimal level of confidence in partner co-operation can be achieved. The study proposes that the entrepreneur can build trust with the VC (and vice versa) by signaling commitment and consistency, being fair and just, obtaining a good fit with one's partner, and with frequent and open communication. Open and frequent communication acts as a catalyst for the other trust building mechanisms. This theoretical framework acts as a counter weight to most previous studies on the VC-entrepreneur relationship that have emphasized control mechanisms in order to build partner co-operation without sufficient consideration of how this might effect trust and how trust and control jointly effect confidence in partner cooperation.
In framing studies, logically equivalent choice situations are differently described and the resulting preferences are studied. A meta-analysis of framing effects is presented for risky choice problems which are framed either as gains or as losses. This evaluates the finding that highlighting the positive aspects of formally identical problems does lead to risk aversion and that highlighting their equivalent negative aspects does lead to risk seeking. Based on a data pool of 136 empirical papers that reported framing experiments with nearly 30,000 participants, we calculated 230 effect sizes. Results show that the overall framing effect between conditions is of small to moderate size and that profound differences exist between research designs. Potentially relevant characteristics were coded for each study. The most important characteristics were whether framing is manipulated by changing reference points or by manipulating outcome salience, and response mode (choice vs. rating/judgment). Further important characteristics were whether options differ qualitatively or quantitatively in risk, whether there is one or multiple risky events, whether framing is manipulated by gain/loss or by task-responsive wording, whether dependent variables are measured between- or within- subjects, and problem domains. Sample (students vs. target populations) and unit of analysis (individual vs. group) was not influential. It is concluded that framing is a reliable phenomenon, but that outcome salience manipulations, which constitute a considerable amount of work, have to be distinguished from reference point manipulations and that procedural features of experimental settings have a considerable effect on effect sizes in framing experiments.
In a new test of the process of forgetting, the authors found that subjects, at the time of exposure, discounted material from “untrustworthy” sources. In time, however, the subjects tended to disassociate the content and the source with the result that the original scepticism faded and the “untrustworthy” material was accepted. Lies, in fact, seemed to be remembered better than truths.
This research used a procedural justice perspective to examine the impact of entrepreneurs' management of information flows in the form of feedback and influence on entrepreneur-investor relations. We conducted both an experiment with master's-level business students and a field survey of venture capitalists regarding their relations with the CEOs of their portfolio companies. The findings revealed the importance of timely feedback in promoting positive relations between investor and entrepreneur. Together, the studies provide strong evidence for the usefulness of procedural justice theory as a framework for understanding the management of interorganizational relations involving new ventures.
In recent years, small businesses have received much attention from policy makers and researchers, in that these businesses are considered important for economic growth and job creation. At the same time small businesses are assumed to face major problems in securing long-term external finance, which is regarded as restraining their development and growth. Small business managers are assumed to use institutional finance as a means of meeting the need for resources, and as a consequence the major part of the research on small business finance has focused on constraints in the supply of institutional (market) finance.
Scholars since Weber have suggested that times of crisis may create an increased opportunity for charismatic leadership to emerge. We examine the rhetorical content of President George W. Bush's public speeches before and after the terrorist attacks of September 11th to determine if the context of crisis affected the President's communications with the American people. We also examined how the media's portrayal of President Bush may have changed after the crisis. Results suggest that the President's rhetorical language became more charismatic after the crisis of 9/11. In addition, the media's portrayal of Bush reflected a similar increase in charismatic rhetoric, suggesting an increased receptivity to a more charismatically based leadership relationship after the crisis.
The credibility of a highly trustworthy communicator was compared with that of an expert. The subjects (36 nuns) heard the same persuasive message concerning AIDS, presented under the guise of either a trustworthy source (a priest), an expert (a doctor), or a neutral source. The results showed that the trustworthy communicator was regarded as significantly more believable than the expert.
This paper argues that while most teachers, researchers, and practitioners of organizational communication encourage clarity, a critical examination of communication processes in organizations reveals that clarity is both non‐normative and not a sensible standard against which to gauge individual or organizational effectiveness. People in organizations confront multiple situational requirements, develop multiple and often conflicting goals, and respond with communicative strategies which do not always minimize ambiguity, but are nonetheless effective. Strategic ambiguity is essential to organizing in that it: (1) promotes unified diversity, (2) facilitates organizational change, and (3) amplifies existing source attributions and preserves privileged positions.
Proposes and tests a new theory of individual risky decision making on 2-outcome gambles played 1 or more times by 24 male undergraduates. The theory proposes that there is a preferred level of risk at each level of expected value and that an individual will maximize expected value in a choice between games which deviate in risk the same amount from their respective ideal risk levels. 2 sets of predictions are tested using some intuitively reasonable assumptions about perceived risk. Results support the theory. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
The seminal work that led to the "Yale Studies in Attitudes and Communication," reporting a series of experiments on communicator credibility, general persuasibility, role playing, fear arousal, order of presentation, and group norms. Much of the later work in attitude change flows directly from this early volume. Harvard Book List (edited) 1971 #487 (PsycINFO Database Record (c) 2012 APA, all rights reserved)
While theory suggests that management has discretion in manipulating resources in order to build competitive advantage, resource-based research has focused on the characteristics of resources, paying less attention to the relationship between those resources and the way firms are organized. In explaining performance, entrepreneurship scholars have focused on a firm's entrepreneurial strategic orientation (EO), leaving its interrelationship with internal characteristics aside. We argue that EO captures an important aspect of the way a firm is organized. Our findings suggest that knowledge-based resources (applicable to discovery and exploitation of opportunities) are positively related to firm performance and that EO enhances this relationship. Copyright © 2003 John Wiley & Sons, Ltd.
Investigates the processes in organizations that underlie the liability of newness--i.e., the higher propensity of younger organizations to die. Whether the liability of newness is due primarily to external factors or internal processes is examined by analyzing the event histories of organizational death. The theoretical arguments underlying this study are developed using data gathered from 389 voluntary social service organizations that came into existence in Toronto, Canada during 1970 to 1980; activity data was gathered through 1982. Results suggest that the acquisition of external legitimacy, including the establishment of supportive exchange relationships with external stakeholders, is related to a significant reduction in the hazard of death. In addition, it is shown that organizations that are not externally legitimated have either a constant hazard of death that does not decline with firm age or an increasing probability. Finally, it is demonstrated that most internal organizational changes are unrelated to the death rate. (SFL)
The world's poor may be the last great frontier in international business. International microlenders are increasingly tapping into this emerging opportunity by extending small business loans to millions of borrowers. However, to date, there is very limited understanding of this domain from an international business perspective. Using qualitative case studies developed in Guatemala and the Dominican Republic we probe the causes and consequences of high performance and business failure for microloan recipients. The analysis of these cases led to the development of six testable propositions focused on the behavior of borrowers whose loans populate the portfolios of international microlenders. Our research aims to lay a foundation in international business for future research on microlending.
After defining and providing the current status of psychological capital (PsyCap), we address the need to better understand its stability (i.e., state vs. trait). Specifically, we issue a call for longitudinal research. The balance of this “incubator” article examines the relevance, potential obstacles, and advantages of this design in meeting PsyCap's future research needs. Copyright © 2008 John Wiley & Sons, Ltd.
Given the importance and prevalence of new venture failure, having a better understanding of the factors that affect its occurrence is a paramount research objective. In view of the increased focus on venture capital firms (VCFs) as important stakeholders for entrepreneurial ventures, in this study we examined the relationship between VCFs' investment strategies and their portfolio failure rates. We examined two aspects of a VCF's investment strategy: (1) the extent to which the VCF develops specialized expertise and (2) the extent to which the VCF undertakes investments in cooperation with other investors through syndication. We tested our hypotheses on longitudinal data of the realized strategies of 200 U.S.-based VCFs over a 12-year period. We found that a VCF's specialized development stage expertise had a negative effect on the proportion of defaults in the VCF's portfolio. We also found that the level of syndication positively—rather than negatively—affected the proportion of defaults. We discuss our findings from both theoretical and practical points of view.
After first providing the meaning of psychological capital (PsyCap), we present a micro-intervention to develop it. Drawn from hope, optimism, efficacy, and resiliency development, this PsyCap Intervention (PCI) is shown to have preliminary support for not only increasing participants' PsyCap, but also financial impact and high return on investment. Copyright © 2006 John Wiley & Sons, Ltd.
New business models combined with a lack of objective operating data result in significant information asymmetry and uncertainty in the valuation of new firms in emerging markets. Information asymmetry increases the risks of both adverse selection and moral hazard. When traditional differentiators of firm quality are lacking, such as in emerging economic sectors, markets may turn to secondary information sources to filter and sort firms. We investigate the roles played by observable corporate governance characteristics as indirect indicators of new firms' potential qualitative differences. Markets may sort firms based on such characteristics because they are perceived to be correlated with desired but unobservable characteristics and actions and they lower the risks of both adverse selection and moral hazard. Our study of publicly traded U.S. Internet firms found that firm market valuation was strongly associated with corporate governance characteristics (e.g., executive and director stock-based incentives, institutional and blockholder stock ownership, board structure, and venture capital participation). In addition, firm age moderated how markets used some quality proxies to determine firm valuation during the post-IPO period. Copyright © 2003 John Wiley & Sons, Ltd.
Our study extends a long-running debate into the domain of entrepreneurship by examining firm and industry effects on the performance of new ventures. We examine to what extent firm and industry levels explain sales, sales growth, and survival among 7,256 young Swedish firms over a five-year period, and compare these findings to a sample of 12,692 established firms. We found that the industry level ‘matters’ little for the survival of either sample of firms, and industry membership matters less for the sales and sales growth of new ventures than for established firms. Post hoc analysis revealed that size affects new venture performance, and that new venture funding is related to both sales and survival. At a broad level, our findings shed new light on the roles of the liabilities of newness and smallness for the performance of new ventures. Copyright © 2009 Strategic Management Society.
Although the value of a supportive organizational climate has been recognized over the years, there is a need for better understanding of its relationship with employee outcomes. This study investigates whether the recently emerging core construct of positive psychological capital (consisting of hope, resilience, optimism, and efficacy) plays a role in mediating the effects of a supportive organizational climate with employee outcomes. Utilizing three diverse samples, results show that employees' psychological capital is positively related to their performance, satisfaction, and commitment and a supportive climate is related to employees' satisfaction and commitment. The study's major hypothesis that employees' psychological capital mediates the relationship between supportive climate and their performance was also supported. The implications of these findings conclude the article. Copyright © 2008 John Wiley & Sons, Ltd.
A number of issues that relate to the desirability and implications of new venture financing are examined within a principal-agent framework that captures the essence of the relationship between entrepreneurs and venture capitalists. The model suggests: (1) As long as the skill levels of entrepreneurs are common knowledge, all will choose to involve venture capital investors, since the risk sharing provided by outside participation dominates the agency relationship that is created. (2) The less able entrepreneurs will choose to involve venture capitalists, whereas the more profitable ventures will be developed without external participation because of the adverse selection problem associated with asymmetric information. (3) If a costly signal is available that conveys the entrepreneur's ability, some entrepreneurs will invest in such a signal and then sell to investors; these entrepreneurs, however, need not be the more able ones. The implications for new venture financing of these and other findings are discussed and illustrated by example.
This paper investigates the role of venture capitalists. We view their “raison d’être” as their ability to reduce the cost of informational asymmetries. Our theoretical framework focuses on two major forms of asymmetric information: “hidden information” (leading to adverse selection) and “hidden action” (leading to moral hazard). Our theoretical analysis suggests four empirical predictions.1. Venture capitalists operate in environments where their relative efficiency in selecting and monitoring investments gives them a comparative advantage over other investors. This suggests strong industry effects in venture capital investments. Venture capitalists should be prominent in industries where informational concerns are important, such as biotechnology, computer software, etc., rather than in “routine” start-ups such as restaurants, retail outlets, etc. The latter are risky, in that returns show high variance, but they are relatively easy to monitor by conventional financial intermediaries.2. Within the class of projects where venture capitalists have an advantage, they will still prefer projects where monitoring and selection costs are relatively low or where the costs of informational asymmetry are less severe. Thus, within a given industry where venture capitalists would be expected to focus, we would also expect venture capitalists to favor firms with some track records over pure start-ups. To clarify the distinction between point 1 and point 2, note that point 1 states that if we look across investors, we will see that venture capitalists will be more concentrated in areas characterized by significant informational asymmetry. Point 2 says that if we look across investment opportunities, venture capitalists will still favor those situations which provide better information (as will all other investors). Thus venture capitalists perceive informational asymmetries as costly, but they perceive them as less costly than do other investors.3. If informational asymmetries are important, then the ability of the venture capitalist to “exit” may be significantly affected. Ideally, venture capitalists will sell off their share in the venture after it “goes public” on a stock exchange. If, however, venture investments are made in situations where informational asymmetries are important, it may be difficult to sell shares in a public market where most investors are relatively uninformed. This concern invokes two natural reactions. One is that many “exits” would take place through sales to informed investors, such as to other firms in the same industry or to the venture’s own management or owners. A second reaction is that venture capitalists might try to acquire reputations for presenting good quality ventures in public offerings. Therefore, we might expect that the exits that occur in initial public offerings would be drawn from the better-performing ventures.4. Finally, informational asymmetries suggest that owner-managers will perform best when they have a large stake in the venture. Therefore, we can expect entrepreneurial firms in which venture capitalists own a large share to perform less well than other ventures. This is moral hazard problem, as higher values of a venture capitalist’s share reduce the incentives of the entrepreneur to provide effort. Nevertheless, it might still be best in a given situation for the venture capitalist to take on a high ownership share, since this might be the only way of getting sufficient financial capital into the firm. However, we would still expect a negative correlation between the venture capital ownership share and firm performance.Our empirical examination of Canadian venture capital shows that these predictions are consistent with the data. In particular, there are significant industry effects in the data, with venture capitalists having disproportionate representation in industries that are thought to have high levels of informational asymmetry. Secondly, venture capitalists favor later stage investment to start-up investment. Third, most exit is through “insider” sales, particularly management buyouts, acquisitions by third parties, rather than IPOs. However, IPOs have higher returns than other forms of exit. In addition, the data exhibit the negative relationship between the extent of venture capital ownership and firm performance predicted by our analysis.
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.
Entrepreneurs are more susceptible to certain cognitive biases than are managers who are not entrepreneurs, but it is not clear why. In an effort to help explain why, I examine differences in the degree to which entrepreneurs exhibit the overconfidence bias. Results show that individual age, firm decision comprehensiveness and external equity funding affect the degree to which entrepreneurs are overconfident. In addition, founder-managers are shown to be more overconfident than are new-venture managers who did not found their firms. The results suggest that entrepreneurs' cognitive biases are a function of both individual and contextual factors.
Entrepreneurial (i.e. business ownership) experience may enable some entrepreneurs to temper their comparative optimism in subsequent ventures. The nature of entrepreneurial experience can shape how entrepreneurs adapt. Using data from a representative survey of 576 entrepreneurs in Great Britain, we find that experience with business failure was associated with entrepreneurs who are less likely to report comparative optimism. Portfolio entrepreneurs are less likely to report comparative optimism following failure; however, sequential (also known as serial) entrepreneurs who have experienced failure do not appear to adjust their comparative optimism. Conclusions and implications for entrepreneurs and stakeholders are discussed.
Venture capitalists (VCs) not only finance but also add value to start-up companies. Advising firms is time consuming and creates a trade-off between intensity of advice and portfolio size. We jointly determine the optimal number of portfolio companies and the intensity of managerial advice. Diminishing returns to advice per firm call for a larger portfolio. With progressively increasing managerial effort cost, however, a larger number crowds out advice to each individual firm. As they receive less support, entrepreneurs request a larger profit share, making further portfolio expansion eventually unprofitable. Comparative static analysis shows how optimal portfolio size responds to venture returns and other parameters.
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.
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.
The start-up team plays a key role in venture capitalists' evaluations of venture proposals. Our findings go beyond existing research, first by providing a detailed exploration of VCs' team evaluation criteria, and second by investigating the moderator variable of VC experience. Our results reveal utility trade-offs between team characteristics and thus provide answers to questions such as “What strength does it take to compensate for a weakness in characteristic A?” Moreover, our analysis reveals that novice VCs tend to focus on the qualifications of individual team members, while experienced VCs focus more on team cohesion. Data were obtained in a conjoint experiment with 51 professionals in VC firms and analyzed using discrete choice econometric models.
Every seasoned investor knows that detailed financial projections for a new company are an act of imagination. Nevertheless, most business plans pour far too much ink on the numbers - and far too little on the information that really matters. Why? William Sahlman suggests that a great business plan is one that focuses on a series of questions. These questions relate to the four factors critical to the success of every new venture: the people, the opportunity, the context, and the possibilities for both risk and reward. The questions about people revolve around three issues: What do they know? Whom do they know? and How well are they known? As for opportunity, the plan should focus on two questions: Is the market for the venture's product or service large or rapidly growing (or preferably both)? and Is the industry structurally attractive? Then, in addition to demonstrating an understanding of the context in which their venture will operate, entrepreneurs should make clear how they will respond when that context inevitably changes. Finally, the plan should look unflinchingly at the risks the new venture faces, giving would-be backers a realistic idea of what magnitude of reward they can expect and when they can expect it. A great business plan is not easy to compose, Sahlman acknowledges, largely because most entrepreneurs are wild-eyed optimists. But one that asks the right questions is a powerful tool. A better deal, not to mention a better shot at success, awaits entrepreneurs who use it.