Experienced founders and investors are arguably the venture community members most likely to possess needed financial and social resources for startups. We present a model of venture evaluation where entrepreneurs solicit these resource providers for needed financial and social resources. Our model addresses how resource providers' venture investment propensity influences their evaluation of entrepreneurs' informational signals and how their venture evaluation predicts their willingness to provide financial and social resources. We test our model using real-time decisions and find resource providers with founding experience (both non-investor founders and investors with founding experience) leverage their investment propensity more than non-founder investors when evaluating new ventures. In addition, our post-hoc analysis reveals that resource providers' founding experience is associated with their willingness to confer social resources. Overall, this paper focuses on the perspective of resource providers and addresses how their investment propensity, types of venturing experience, and venture evaluation influence their willingness to render resource support to new ventures.
New venture creation is often dependent upon a community of individuals who support dedicated entrepreneurs. This support includes financial (e.g., money, equipment, etc.) and social resources (advice, referrals, etc.) that entrepreneurs use to develop their products and services for the marketplace. Entrepreneurs initiate this process when they solicit venture community members for resource support.
While there is depth in the extant research concerning the importance of financial and social resources, few studies provide a more granular view illuminating why experienced venture community members are willing to confer resources at the nascent stages of venture development. Indeed, there is little consensus concerning what attributes and information lead to resource support by these resource providers, especially at the nascent stages of new venture creation. These mixed findings lead to varied guidance, at times conflicting, concerning how entrepreneurs should solicit resource providers in venture communities. We suggest that the lack of clarity occurs because the literature does not fully address resource providers' background and characteristics, including the types of venturing experiences they possess.
Our research question addresses what factors influence resource providers' willingness to engage in resource conferrals to entrepreneurs in support of their new ventures. We focus on the antecedents and consequences of resource providers' interpretation of entrepreneurs' informational signaling. Resource providers' propensity to invest in new ventures (in short, investment propensity) should be associated with their interpretation of entrepreneurs' informational signals. More specifically, we hypothesize the higher resource providers' investment propensity, the more likely they will perceive the future success of new ventures under evaluation.
Our study also focuses on the differential effects of venture founding and investing experience on the relationship between investment propensity and venture evaluation. Based on these two types of venturing experience, we classify resource providers into three types: (a) non-investor founders, (b) non-founder investors, and (c) investors with founding experience. As potential resource providers, these venture community members are most likely to have accumulated the financial and social resource stocks necessary for supporting new ventures. Therefore, we hypothesize that the difference between founding experience and investing experience modifies the relationship between resource providers' investment propensity and their venture evaluation. More specifically, we posit that compared to non-founder investors, resource providers with founding experience—both non-investor founders and investors with founding experience—leverage their investment propensity to a greater extent in their venture evaluation. Afterward, we delineate the relationship between resource providers' venture evaluation and willingness to provide financial and social resources to entrepreneurs in support of their new ventures. The focal resources considered in this study are (a) monetary investment, (b) advice, and (c) recommendations to others.
We tested our model using real-time survey data that comprised 217 individual pitch evaluations of 46 startups and 38 survey respondents over a six-year timeframe. While we found no statistical support for the relationship between resource providers' investment propensity and venture evaluation, we did find differences between resource providers with and without founding experience. Specifically, we found that among founders, including non-investor founders and investors with founding experience, their investment propensity is positively related to their venture evaluation compared to investors without founding experience. Finally, we found that resource providers' venture evaluation is positively related to their willingness to invest in, advise, and recommend new ventures. Our additional post-hoc analysis revealed that compared to investors without founding experience, founders are similarly willing to confer financial resources but are more willing to confer social resources. Based on our findings, our study provides evidence that differences in the types of resource providers' venturing experience can help explain how resource providers' domain-specific risk propensity (specifically, investment propensity) can shape their venture evaluation and willingness to confer financial and social resources.