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Angels or Sharks? The Role of Personal Characteristics in Angel Investment Decisions

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Abstract

We use actual negotiations between angel investors and entrepreneurs to study the impact of personal characteristics on investment outcomes. We construct a unique data set with 707 investment requests led by 1,089 entrepreneurs and find that the personal characteristics of the entrepreneur, including gender, race, and age, are correlated with requested valuations, the likelihood that an offer is received, and the implied valuation when an angel investor extends an offer. Shared personal characteristics between entrepreneurs and investors also affect the likelihood that an investor makes an offer, the entrepreneur accepts an offer, and the implied valuation when an offer is extended.

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... However, this literature is rarely able to examine both sides of the interaction due to lacking transparency and as such typically focuses on the gender of entrepreneurs. The scarce two-sided literature sometimes considers homophily, exploring shared characteristics between investor and entrepreneur, although often not as the main focus (Becker-Blease and Sohl 2007; Boulton et al. 2019). Overall, few studies examine gender interaction effects in their entirety in the venture capital space from the investor's perspective (Harrison and Mason 2007;Boulton et al. 2019;Balachandra 2020). ...
... The scarce two-sided literature sometimes considers homophily, exploring shared characteristics between investor and entrepreneur, although often not as the main focus (Becker-Blease and Sohl 2007; Boulton et al. 2019). Overall, few studies examine gender interaction effects in their entirety in the venture capital space from the investor's perspective (Harrison and Mason 2007;Boulton et al. 2019;Balachandra 2020). ...
... Notably, Boulton et al. (2019) study Shark Tank, featuring 175 (vs. our 246) episodes from eight seasons (as opposed to our 11 seasons). ...
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Using comprehensive data of 4893 interactions from the popular television show Shark Tank, we test whether gender match with entrepreneurs correlates with investors’ likelihood to extend funding offers. We find female investors are 35% more likely to engage with female (rather than male) entrepreneurs, while less systematic gender preferences emerge for male investors. Heterogeneity analyses suggest this result remains exclusive to non-male-dominated product categories, lending support to the industry representation hypothesis. We also find it is exclusive to ventures with lower asking valuations. Estimates are robust to the inclusion of a comprehensive set of control variables (such as asking valuation, investor-, and season-fixed effects) and a range of alternative specifications.
... While VCs and BAs meet the founder team in person to address questions and discuss business models (Harrison, Mason, and Smith 2015;Boulton, Shohfi, and Zhu 2018), crowd investors typically communicate with entrepreneurs through the online platform (Agrawal, Catalini, and Goldfarb 2015). In this regard, the discussion board, which is accessible to all registered investors, might be an important complement to information conveyed through the project description that is provided by entrepreneurs. ...
... To answer this research question, we use a mixed-method research design to assess discussions posted by investors on project-related discussion boards. Evaluating interactions of investors and entrepreneurs is a technique that is also used in the BA context (Maxwell, Jeffrey, and Lévesque 2011;Jeffrey, Lévesque, and Maxwell 2016;Boulton, Shohfi, and Zhu 2018). ...
... Further, BAs are concerned about agency risks (Harrison and Mason 2017;Van Osnabrugge 2000) and, thus, put a particular emphasis on criteria related to the entrepreneur, including, for example, skills, experience, and track record (Haines, Madill, and Riding 2003;Mason and Stark 2004). Other studies suggest that BAs consider subjective criteria, such as trustworthiness (Harrison et al, 1997;Maxwell and Lévesque 2014), presentation skills (Mason and Harrison, 2003;Clark 2008), shared personal characteristics (Boulton, Shohfi, and Zhu 2018), and realistic firm valuations (Haines, Madill, and Riding 2003;Maxwell, Jeffrey, and Lévesque 2011). BAs use such evaluation criteria as heuristics to "filter out no hopers" (Harrison, Mason, and Smith 2015, p.531) and identify "fatal flaws" (Maxwell, Jeffrey, and Lévesque 2011, p.216) to focus in on the most promising opportunities. ...
Article
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Start-ups are increasingly using equity crowdfunding to raise necessary funding at an early stage. In this rather new form of financing, potential investors communicate with each other and the entrepreneurs typically through the discussion boards of mediating online platforms. Using a mixed-methods approach, this explorative study analyses the role of investor-initiated discussions in equity crowdfunding. First, we develop a framework and categorize 574 interactions between potential investors and entrepreneurs posted on the project-related discussion boards of the Crowdcube equity crowdfunding platform. The framework is built on deductive criteria from the context of business angels and inductive criteria that are unique to the equity crowdfunding context. Five discussion topics stand out in relevance: valuation, financial snapshot, likely returns, shareholder rights, and market risk. Exploring the qualitative data reveals that investors are concerned about high information asymmetries and agency risks. Second, we use panel data of 2,258 funding days to analyse whether discussions signal endorsement and increase funding success. The econometric results show that discussions generally propel investments. However, discussions on topics like market risk and shareholder rights harm funding success. The study highlights the complementarity of discussion boards as an information source for investors, providing a more nuanced picture of the investor perspective in equity crowdfunding and proposing avenues for future research.
... ( Gorman and Sahlman, 1989: p. 237) -"compared to venture capital investors, angel investors tend to have more operating experience and often expect greater involvement in the day-to-day operations of the companies in which they invest." ( Boulton et al., 2019( Boulton et al., : p. 1283) -"VCs must rely on the leaders involved in the ventures they invest in to achieve their desired ends-a successful exit event" ( Matusik et al., 2008: p. 107) Decision experiences concerning investments ...
Article
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. Executive summary 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.
... In the same vein, age-related stereotype literature argues that behaving entrepreneurially (e.g., being innovative) in the work context is expected from younger than older individuals ). Thus, leading an entrepreneurially-oriented business might not be perceived as a typical behavior of an older CEO, which, in turn, could limit their ability to access resources (Boulton, Shohfi, & Zhu, 2019). A small firms CEO is the "face" of the organization to job applicants, and age is an easily accessible facial cue that individuals automatically use to make inferences about leader abilities . ...
Thesis
Attracting job applicants is a challenging task for entrepreneurial firms. Research has only begun to study factors predicting entrepreneurial firm recruitment success. Still, a large knowledge gap exists on the topic of entrepreneurial firm recruitment. This cumulative dissertation seeks to address this void. It includes five research papers (chapters 3 to 7) that theoretically and empirically contribute to existing literature by analyzing job applicants’ perceptions of entrepreneurial signals, and by exploring the influence of role (in)congruities which might indicate currently overlooked challenges and opportunities for recruiting entrepreneurs. After a summary of the overall findings in chapter 1, the introduction section (chapter 2) provides a brief summary of the individual research papers as well as their main findings and contributions. The five research papers address following research questions: Does organizational attractiveness increase, via perceived authenticity, when entrepreneurs show entrepreneurial leadership? Is this effect particularly pertinent when entrepreneurs fit the demographic stereotype – being a young man? (research paper 1). Does signaling entrepreneurial orientation influence applicants’ attraction to a small firm, and does CEO age moderate this relationship? (research paper 2). Does job candidates’ perceptions of gender and occupational role incongruities (e.g., women leading start-ups) lead to differences in recruiting outcomes for start-ups using active recruitment strategies via social media? (research paper 3). What do potential employees think how a typical entrepreneurial leader behaves and looks like? (research paper 4). Does the intersection of social categories such as gender, ethnicity, and occupational roles influence human resource acquisition of new ventures? (research paper 5). This dissertation provides new insights and perspectives related to entrepreneurial firm recruitment, and primarily contributes to research at the intersection of entrepreneurship, leadership, and recruitment.
... Mason and Harrison (2002b) compare VCs and BAs, noting that VCs have greater investment experience and make more profound investment decisions, including more economic considerations when deciding on an investment. Relatedly, Boulton et al. (2018) and Harrison and Mason (2017) show that BAs also use rather noneconomic considerations, relying on subjective and informal evaluation criteria such as, e.g., shared personal characteristics. Accordingly, we expect VC affiliations to be an especially credible signal that increases the probability of equity crowdfunding success. ...
Article
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Unfortunately, the original version of this article was published online with error. The data in Tables 1, 3, 4, 5 and 6 were incorrectly displayed and aligned by the Springer proofreaders/or in the proofread stage of Springer. The corrected Tables 1, 3, 4, 5 and 6 are shown in the next page. © 2019, Springer Science+Business Media, LLC, part of Springer Nature.
... Mason and Harrison (2002b) compare VCs and BAs, noting that VCs have greater investment experience and make more profound investment decisions, including more economic considerations when deciding on an investment. Relatedly, Boulton et al. (2018) and Harrison and Mason (2017) show that BAs also use rather noneconomic considerations, relying on subjective and informal evaluation criteria such as, e.g., shared personal characteristics. Accordingly, we expect VC affiliations to be an especially credible signal that increases the probability of equity crowdfunding success. ...
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Drawing on signaling theory, this study provides preliminary evidence that prior financing certifies firm quality to investors and reduces information asymmetries in equity crowdfunding. We examine 221 business plans and project descriptions of start-ups that ran equity crowdfunding campaigns on Crowdcube in 2017 and 2018. Almost half of the start-ups had previously raised funds through business angels, venture capitalists, crowdfunding, or grants. Prior financing positively affects campaign success. Overall, the effect is larger for firms backed by multiple investor types and for firms that have run successful crowdfunding before. To isolate the quality signal from the additional benefits related to an affiliation with other investors, we analyze whether the effect of prior financing is moderated by the uncertainty around a project. In support of a signaling effect, preliminary evidence suggests that prior financing is most relevant for firms in the uncertain seed stage. Among the different investor types, we find that, in particular, an affiliation with venture capitalists signals quality. Such an affiliation is more important for firms with low levels of human and social capital. Our study adds to the understanding of how equity crowdfunding interacts with traditional forms of entrepreneurial finance.
... Some researchers attribute discrepancies in angel and VC investing to homophily, or the tendency of people to be attracted to working with and investing in people like them (Becker-Blease and Sohl 2007;Boulton, Shohfi, and Zhu 2016;Franke et al. 2006). According to this theory, male angel investors are more inclined to invest in male entrepreneurs rather than in women. ...
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The Rising Tide Angel Training Program was launched to address the public policy priority of increasing the number of growth-oriented women-owned firms by expanding the entrepreneurial ecosystem in ways that will benefit women. In particular, the founders sought to address structural weaknesses in a key component of the entrepreneurial ecosystem, women’s access to financial capital in the form of equity, mentorship, and contacts. The Rising Tide Angel Training Program was launched in the fall of 2015 with the goal of increasing the number of women angel investors capable of investing in growth-oriented women-owned firms through a program of education, training, and hands-on experience with the angel investing process. In this paper, we present our findings from the first Rising Tide training cohort in terms of changes in participants’ motivations, attitudes, and expectations as they relate to angel investing. We also present findings on changes in knowledge, skills, and the ability to evaluate investment opportunities. Finally, we identify and discuss key “takeaways” from our first year’s experience with the Rising Tide Angel Training Program and next steps.
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This paper examines whether financial institutions discriminate against entrepreneurs on the basis of gender. Using the cross-country Business Environment and Enterprise Performance Survey (BEEPS), we find some evidence that, compared to male-managed counterparts, female-managed firms are less likely to obtain a bank loan. In addition, our analysis suggests that female entrepreneurs are charged higher interest rates when loan applications are approved. There is also some evidence that the gender differences in access to financing vanish with the level of financial development, which is consistent with Becker-type discrimination. The results of our analysis are robust to a number of specification checks. Journal of Comparative Economics37 (2) (2009) 270–286.
Article
Using newly available data from the Federal Reserve, we examine the impact of personal wealth on small business loan turndowns across demographic groups. Information on home ownership, home equity, and personal net worth excluding the business owner's home, in combination with data on the personal credit history of the principal owner, the business credit history of the firm, a rich set of additional explanatory variables, and information on the competitiveness of local banking markets, contributes to our understanding of the credit market experiences of small businesses across demographic groups. We find substantial unexplained differences in denial rates between African American-, Hispanic-, Asian-, and white-owned firms. We also find that greater personal wealth is associated with a lower probability of loan denial. However, even after controlling for personal wealth, large differences in denial rates across demographic groups remain. Further, consistent with Becker's classic consistent with Becker’s classic theories (1957), we find some evidence that African American-denial rates increase with lender market concentration.
Book
This Handbook charts the development of venture capital research in light of the global financial crisis, starting with an analysis of the current venture capital market and the changing nature of the business angel market. Looking at governance structures, the performance of venture capitalists in terms of investments, economic impact and human capital, and the geographical organization of business angels and venture capital global 'hotspots', this book also analyses the current state of venture capital research and offers a roadmap for the future.
Article
This study explores success rates in angel financing based on the gender composition of entrepreneurial teams using unique, hand-collected data from the television program Shark Tank. We find that the likelihood of a team receiving an offer from an angel investor is independent of the entrepreneurs’ gender and initial asking valuation. However, consistent with prior work, we find that female teams receive lower company valuations and less capital to finance their new ventures relative to their male counterparts and that this differential valuation depends on industry. We also discover, however, that female teams receive less funding because they initially ask for significantly lower valuations for their companies, ceteris paribus. These results hold when controlling for important entrepreneur and firm characteristics that may strongly impact the angel financing outcome, such as the size of the entrepreneurial team, company age and prior success of the firm.
Article
Firms whose human capital is concentrated in a few irreplaceable employees lack diversification in their human capital stock, exposing them to key human capital risk. Using disclosures of “key man life insurance” to measure this risk, we show that exposed firms are riskier. These younger, smaller, growth firms have abnormally high volatility, and following announcement of key employee departures, the most exposed firms lose 8% of their value. Key employees tend to be highly educated. They are four times more likely to hold PhD degrees than top managers, and firms with key human capital are more innovative.
Article
Since the early 1980s, new ventures with high growth potential and large capital needs have found an ever-increasing pool of venture capital available to support their growth. However, the flow of venture capital investment to women-led businesses remains meager in spite of the fact that in the US and Europe an increasing number of businesses are owned by women. The apparent disparity between potential investment opportunity and actual deals made between venture capital firms and women-led businesses raises the question of whether gender is an issue. The majority of venture capital studies investigate equity funds flows, investor criteria and the nature of the investor-investee relationship. Research on women entrepreneurs focuses on psychological dimensions, business characteristics and performance. Questions about the intersection of gender and venture capital financing are largely unexamined. This exploratory study utilizes longitudinal data to track US venture capital investments by proportion, stage, industry and gender. The descriptive statistics and our analysis of the findings suggest several hypotheses to explain the apparent gender gap.
Article
We analyze credit applications, loan denials, and interest rates paid by small businesses across owner gender, race, and ethnicity. In addition, we examine data from owners who said they did not apply for credit because they believed that their applications would have been turned down. After controlling for a rich set of explanatory variables, including personal and business credit histories, substantial differences in denial rates between firms owned by African Americans and white males remain. Moreover, consistent with Becker's classic theories (1957), we find evidence that increases in competition in the firm's local banking market reduces these differences.
Article
In this study, we examine the relationship between owner and business characteristics and business survival. Our findings are based upon analyses of the Census Bureau's 1982 and 1987 Characteristics of Business Owners (CBO) survey data on a sample of white male and female sole proprietors. Two aspects of this study distinguish it from any related studies to date. First, we separately examine issues affecting the survival prospects of female-owned businesses, whereas previous studies have focussed solely on businesses owned by men. Second, we use data on cohorts of businesses started or acquired in two different time periods, namely 1980-1982 and 1985-1987. Overall, the mean survival rates of male-owned businesses in these two cohorts are 4- to 6% higher, respectively, that those of businesses owned by women. We hypothesize that wage employment provides opportunities for men and women to acquire the financial and human capital necessary for success in business ownership. In fact, most male and female business owners had some prior spell of employment in the wage sector. But there are gender differences in the status of wage workers that, we further hypothesize, could differentially impact the survival prospects of men's and women's new business ventures. First, women's lower average wage earnings may imply more binding financial constraints on the initial scale of women's businesses relative to men's. Second, we find that female owners in both cohorts are less likely than their male counterparts to have had any prior managerial experience or to have 10 or more years of general, prior paid employment experience, which may imply that female entrepreneurs are more constrained in the amount and quality of human capital that they acquire during wage employment. Female entrepreneurs' access to debt and equity capital has not been overlooked by policy makers. What has been largely overlooked are possible gender differences in the amount and quality of human capital of new entrepreneurs. Women's fewer years of general work experience and lesser exposure to managerial occupations may indicate a role for remedial education or mentoring of would-be female entrepreneurs. Women in both cohorts tended to use less financial capital to start or acquire their businesses than men did, and for the 1982 cohort, business survival is found to be positively related to the amount of start-up capital, other factors held constant. The survival prospects of both male- and female-owned businesses are greater for owners with 10 or more years of prior work experience and/or 4 or more years of college. So at least in terms of education and quantity of work experience, female entrepreneurs are at something of a disadvantage relative to their male counterparts. We find that prior managerial experience has no systematic positive or negative effects on the survival prospects of either men's or women's new business ventures, however. Finally, our research indicates that issues concerning business formation and survival must be considered within the context of prevailing macroeconomic conditions. For example, we find that the survival rates of both male- and female-owned businesses started in the 1985-1987 time period were considerably higher than those of businesses started in 1980-1982. Moreover, we uncover systematic differences in owner and business characteristics between our 1982 and 1987 cohorts, as well as differences in how these characteristics influence business survival. Specifically, both male and female owners in our 1982 cohort were better educated, were more likely to have had prior, paid managerial experience, and had more years of prior, paid employment experience, in general. Researchers interested in assessing the survival prospects of businesses over a given time period must consider changes in both product and labor markets over that period. Strength of demand in product markets will have an obvious, direct effect on business viability. The tightening and loosening of labor markets imply changes in potential wage earnings (an opportunity cost of being self-employed) and in this way can affect business dissolution.
Article
Demographic trends in the developed world indicate that older entrepreneurs will play an increasingly important part of economic activity as populations age, yet this cohort has been largely ignored in entrepreneurship research. This paper provides an overview of current research about the so-called "grey entrepreneur" (also known as senior, older, third age or elderly entrepreneurs), drawing on research from a number of nations. The extant literature indicates that a majority of older entrepreneurs are male, although the number of older female entrepreneurs is increasing; they are also less likely to possess formal educational qualifications than younger entrepreneurs. Some of the advantages that such entrepreneurs possess include greater levels of technical, industrial and management experience; superior personal networks; and a stronger financial asset base. Some of the disadvantages or potential barriers faced by older entrepreneurs can include lower levels of health, energy and productivity; ageism; and the value that his or her society places on active ("productive") ageing. Numerous issues still remain to be investigated in this field of research. These include the differences between younger and older entrepreneurs; their motives and success criteria; the impact of financial, knowledge and other resources on venturing behaviour; the role of government policies in fostering or hampering individual enterprise; and the significance of cultural differences amongst older entrepreneurs. Research in this field is currently also hampered by a multiplicity of terms and definitions, a lack of age-related data about different entrepreneurial cohorts, and the problems inherent in operationalising the concept of the "grey entrepreneur."
Article
The nature and extent of complementarities between the informal and formal venture capital markets has been the subject of limited research. This paper explores systematically the nature and extent of complementarities between the formal and informal venture capital markets in the UK, and identifies the opportunities for additional collaboration. Evidence is presented from surveys of business angels and venture capital fund managers for four types of complementarities: co-investing in deals; sequential investing in ventures; business angels as investors in venture capital funds; and deal referring.
Article
This paper considers the impact of the intellectual property (IP) system on the market for entrepreneurial finance. If the market for entrepreneurial finance were efficient, investors’ valuations of start-up firms should be independent of whether their patents’ were pending or granted. However, during the pre-grant period, the need to disclose unprotected knowledge, asymmetric information and adverse selection could result in lower valuations. This study therefore estimates whether patent grant, which reduces uncertainty about the scope of the IP rights conferred, enhances start-ups’ valuations by venture capitalists. Original panel data pertaining to 317 Israeli technological start-ups, who received more than 980 financing rounds, enter a fixed-effects analysis that controls for firms’ unobserved heterogeneity. The results show a positive association between patent applications and firm valuations for firms whose technology is not software based. No association is found between patents and the valuations of software firms. The additional impact of granted patents is positive and significant for non-software firms who are younger, in their pre-revenue stages and during early financing rounds but small and insignificant for more mature start-ups. These findings suggest that, in the case of younger start-ups, uncertainty about patent scope, coupled with imperfections in the entrepreneurial finance market, adversely affect the relationship between entrepreneurs and investors. A more speedy examination process of younger firms’ patent applications therefore could enhance their ability to attract financing.
Article
This paper estimates the degree of risk aversion from one of the most popular TV gameshows ever. The format of the show is straightforward; it involves no strategic decision making; we have a large number of observations; and the prizes are cash, which is paid immediately and covers a large range: from £100 up to £1 million. We provide non-parametric estimates of the utility function and then we test some parametric restrictions. We find that, although the restriction to CRRA utility is statistically rejected, a log function approximates the utility function quite well over a large range of potential winnings.
Article
This study examined the formation and persistence of homophilous, or same-race, friendship ties among racial minorities and whites in a “newcomer” setting. Homophilous ties provide valuable sources of mutual support but may limit racial minorities' access to resources and information in organizations. Study participants were first-year MBA students who entered a program at the same time. We measured network ties at two times: six weeks after the beginning of the students' first semester in the program, and at the beginning of the following semester 3 1/2 months after the second survey. We also administered a separate survey measuring social identity salience prior to the first network survey. Despite the fact that there were fewer same-race ties for racial minorities to choose from, their friendship networks demonstrated greater homophily than those of whites early in the formation of the network and over time. Also, African-Americans were more likely than whites to seek out homophilous friendship ties in other class sections. Race as a salient social identity group membership was positively related to homophily for African-Americans, Hispanics, and whites. Over the time period studied there was no significant change in homophily among the racial groups' networks, despite the explicit promotion of diversity in recruitment of students, formation of heterogeneous classes and teams, and active support by the MBA program administrators. We discuss the practical implications of our findings for organizations that are attempting to increase cultural diversity and promote active interaction among individuals from different racial and ethnic backgrounds.
Article
Entrepreneurship education ranks high on policy agendas in Europe and the US, but little research is available to assess its impact. To help close this gap we investigate whether entrepreneurship education affects intentions to be entrepreneurial uniformly or whether it leads to greater sorting of students. The latter can reduce the average intention to be entrepreneurial and yet be socially beneficial. This paper provides a model of learning in which entrepreneurship education generates signals to students. Drawing on the signals, students evaluate their aptitude for entrepreneurial tasks. The model is tested using data from a compulsory entrepreneurship course. Using ex-ante and ex-post-survey responses from students, we find that intentions to found decline somewhat although the course has significant positive effects on students’ self-assessed entrepreneurial skills. The empirical analysis supports the hypothesis that students receive informative signals and learn about their entrepreneurial aptitude. We outline implications for educators and public policy.
Article
Although research on the informal venture capital market has expanded in recent years our current knowledge and understanding remains deficient in a number of respects. This paper examines three aspects of the operation of the informal venture capital market where information is either lacking or based on anecdotal or impressionistic evidence: the investment process, the post-investment experience and the investment performance. Information was obtained via telephone interviews with 31 business angels and with 28 owner-managers. In 20 cases information was available from both the entrepreneur and the investor. The paper concludes that in most cases the informal venture capital process has worked relatively well. There are few situations where the relationship between investor and entrepreneur broke down. Nevertheless, the naivety and inexperience exhibited by a minority of investors and entrepreneurs is striking. However, there are significant and consistent expectation gaps between investors and entrepreneurs in terms of the pricing of larger investments and the performance of the business. Differences of opinion between investors and entrepreneurs concerning what constitutes a favourable perforrnance of the business may be a source of disputes in the future.
Article
Young (N= 57), middle-aged (N= 57), and older adults (N= 47) were presented with an editorial that argued in favor of their age group's economic interests (e.g., their privilege was fair; their disadvantage was unfair) or against their age group's economic interests (e.g., their privilege was unfair; their disadvantage was fair). Participants completed measures of perceived age discrimination, attributions for outcomes, and support for age-based spending. Unfavorable intergenerational comparisons elicited higher perceived age discrimination in middle-aged adults, and more support among all age groups for funding to middle-aged adults compared to favorable comparisons. Young and older adults reported more age discrimination than middle-aged adults regardless of comparison type. Age group status consequences for responses to the intergenerational conflict debate are discussed.
Article
Since the nadir of the early nineties the angel and venture capital markets began a rapid recovery followed by a marked decline. These recent market gyrations offer insights into the private equity industry. During the rise angel and venture capital investments soared, accompanied by rising deal valuations. For the first time since the study of angels was initiated, venture capital investments exceed, in total dollars, the amount of angel investments, although the number of deals remained larger in the angel market. However, unsustainable trends inevitably return to normalcy and these changes have resulted in a restructuring of the market. Angels are reasserting their fundamental role as the major source of seed capital for high growth entrepreneurial ventures. This paper examines the rise and the downturn in the private equity market, and identifies some of the causes for each. Current and future market trends are also identified.
Article
Using a novel measure from corporate owned life insurance policies we find that firms with substantial "key" human capital are risky. "Key man" life insurance policies insure the death of a key employee, where the firm is the beneficiary, thereby placing a dollar amount on the insured employee's firm-specific human capital. Firms that disclose exposure to key employee risk tend to be younger, smaller, growth firms with few tangible assets and high investment in R&D. Idiosyncratic volatility is higher for these firms and following the announcement of key employee departures, affected firms lose 3% of their value. Additionally, key human capital intensive firms earn positive abnormal returns in the cross-section.
Article
This study examines the relevance of financial and non-financial information for the valuation of venture-capital investments. Based on a hand-collected dataset on venture-backed start-ups in Germany, we investigate the internal due diligence documents of over 200 investment rounds. We document that balance sheet and income statement items capture as much economic content as verifiable non-financial information (e.g., team experience or the number of patents) while controlling for several deal characteristics (e.g., industry, investment round, or yearly venture capital fund inflows). In addition, we show that valuations based on accounting and non-accounting information yield a level of valuation accuracy that is comparable to that of publicly traded firms. Further analyses show that the industry-specific total asset multiples outperform the popular revenue multiples but lead to significantly less accurate results than those obtained from the more comprehensive valuation models. Overall, our findings might inform researchers and standard setters of the usefulness of accounting information for investment companies and provide additional evidence to gauge the overall valuation accuracy in venture capital settings.
Article
Investigating the factors that influence venture capital decision‐making has a long tradition in the management and entrepreneurship literatures. However, few studies have considered the factors that might bias an investment decision in a way that is idiosyncratic to a given investor–entrepreneur dyad. We do so in this study. Specifically, we build from the literature on the ‘similarity effect’ to investigate the extent to which decision‐making process similarity (shared between the investor and the entrepreneur) might bias or otherwise impact the investor's evaluation of a new venture investment opportunity. Our findings suggest venture capitalists evaluate more favourably opportunities represented by entrepreneurs who ‘think’ in ways similar to their own. Moreover, in the presence of decision‐making process similarity, the impacts of other factors that inform the investment decision actually change in counter‐intuitive ways.
Article
This study examines the relationships among angel investor-entrepreneur relationship conflicts, task conflicts and goal conflicts on the one hand and their intentions to exit on the other. I evaluate the hypotheses with survey data from 65 angel investors and 72 entrepreneurs belonging to 54 ventures located either in California or Belgium. Regression analyses indicate that entrepreneurial intentions to exit are higher for entrepreneurs who face more task and goal conflicts. Angel investors’ intentions to exit are only increased when faced with more goal conflicts. Together, these results indicate the importance of taking into account investor-entrepreneur relations when studying their respective exit processes.
Article
In this article, we combine perspectives from labor economics and entrepreneurship to examine early retirees’ decision to become self-employed. Many individuals leave career employment before the traditional age of 65 and return to the labor market for a period of time before they fully retire. This phenomenon is referred to in the labor economics literature as bridge employment. Initial research of bridge employment has identified entrepreneurial activities to be common. The authors argue that first early retirees have to make the decision whether to permanently retire or to continue their labor force participation. If they decide to return to work, then self-employment is one option. Using the theoretical foundations of entrepreneurship, the authors outline the factors that would influence the self-employment choice and the types of entrepreneurial paths emanating from that choice.
Article
This study explored the reason for the high academic achievements of Asian Americans by comparing the quality of experience of Asian and Caucasian American adolescents. The Experience Sampling Method was used to record subjective experiences. Subjects were 34 Asian American and 392 Caucasian American adolescents in the 6th, 8th, 10th, and 12th grades. When engaged in work-like activities and activities important for their future goals, Asian American students reported more positive experiences relative to Caucasian American adolescents. The examination of parental practices concerning children's academic activities indicated that Asian American parents structured their children's lives to facilitate academic success, and at the same time, they provided their children with freedom (or support their children's autonomy) in actual academic activities. The internalization of cultural values was suggested as a possible factor for promoting the educational success of Asian Americans.
Article
Openings of women-owned businesses have radically accelerated recently. This paper explores the causes and results of this phenomenon. Noting the predictive weaknesses of the canonical neoclassical perspective, an extended institutional framework incorporating the impact of male-dominated networks seems to better explain women’s situations in both the traditional and entrepreneurial labor markets. Theoretical and empirical evidence points to the paradoxically obstructive role of information networks as the source of women’s market difficulties. In the light of this, the paper considers possible motivations for the continued influx of women to entrepreneurship and its potential implications for women’s economic status.
Article
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.
Article
Social structure, values, and gender socialization have undoubtedly disadvantaged women in the process of preparing for a career in business, and there is a widely held view that women are subject to discrimination by financial institutions. However, the “evidence” to verify this belief has largely been from studies where women have claimed that they were subject to discrimination in the loan situation, without either supporting evidence, or control data from a sample of male loan applicants.Two experiments were carried out, using a Goldberg type procedure, to test the belief that women are unfairly discriminated against when seeking a loan to establish a business venture. Carefully constructed scenarios of an application for loan finance to purchase a commercial enterprise were mailed to loan officers of major trading bank branches. The scenarios were identical in all respects except for the sex and education level of applicants. Loan officers were asked whether or not they would approve loan finance for the proposed business purchase and to indicate factors that contributed to their decisions.Significant differences in response to female and male applicants were observed in both experiments. In Experiment I (University education) both sexes were equally likely to obtain a loan, but “education” was considered a more important factor for the female applicant than for the male. In Experiment II (High school education) the female applicant was less likely to obtain a loan than the male applicant.The results support the widely held perception that women can experience gender discrimination when seeking start-up capital. Such discriminatory behavior by loan officers may not be, and probably is not, intentional. Rather, the pervasiveness of the social construction of differential gender roles in western culture is such that it is more likely that discrimination is unconscious, and consequently more difficult to change.
Article
It is suggested that the recognition of new business opportunities often involves pattern recognition--the cognitive process through which individuals identify meaningful patterns in complex arrays of events or trends. Basic research on pattern recognition indicates that cognitive frameworks acquired through experience (e.g., prototypes) play a central role in this process. Such frameworks provide individuals with a basis for noticing connections between seemingly independent events or trends (e.g., advances in technology, shifts in markets, changes in government policies, etc.), and for detecting meaningful patterns in these connections. We propose that ideas for new products or services often emerge from the perception of such patterns. New business opportunities are identified when entrepreneurs, using relevant cognitive frameworks, "connect the dots" between seemingly unrelated events or trends and then detect patterns in these connections suggestive of new products or services. To obtain evidence on these proposals, we compared the "business opportunity" prototypes of novice (first-time) and repeat (experienced) entrepreneurs--their cognitive representations of the essential nature of opportunities. As predicted, the prototypes of experienced entrepreneurs were more clearly defined, richer in content, and more concerned with factors and conditions related to actually starting and running a new venture (e.g., generation of positive cash flow) than the prototypes of novice entrepreneurs. These findings offer support for the view that pattern recognition is a key component of opportunity recognition.
Article
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
Article
There is a considerable variation in estimates of the degree of risk aversion in the literature. This paper analyses the behaviour of contestants in one of the most popular TV gameshows ever to estimate a CRRA model of behaviour. This gameshow has a number of features that makes it well suited for our analysis: the format is extremely straightforward, it involves no strategic decision-making, we have a large number of observations, and the prizes are cash and paid immediately, and cover a large range - up to £1 million. Our data sources have the virtue that we are able to check the representativeness of the gameshow participants. While the game requires skill, which complicates our analysis, the structure of the game is very simple so that complex probability calculations are not required of the participants. The CRRA model is complex despite its restrictiveness because of the sequential nature of this game - answering a question correctly opens the option to hear the next question and this has a value that depends on the stage of the game and the player's view about the difficulty of subsequent questions. We use the data to estimate the degree of risk aversion and how it varies across individuals. We investigate a number of departures from this simple model including allowing the RRA parameter to vary by gender and age. Even though the model is extremely restrictive, in particular, it features a single RRA parameter we find that it fits the data across a wide range of wealth remarkably well and yields very plausible parameter values.