Venture capitalists' decision criteria in new venture evaluation

Hall, Julie; Hofer, Charles W.

doi:10.1016/0883-9026(93)90009-t

Cited by 393 publications

(297 citation statements)

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“…(The task is described in more detail below.) Because there are many factors that infl uence outcomes in the context of VC decision making (e.g., Hall and Hofer, 1993;MacMillan et al, 1985;MacMillan et al, 1987;Sexton and BowmanUpton, 1990;Shepherd, 1999;Tyebjee and Bruno, 1984;Zacharakis and Meyer, 1998), designing our task around decision scenarios allowed us to control for (eliminate) factors that were not germane to our specifi c research questions about the role decision makers' values play in their evaluations of founders. Also, providing information on actual opportunities has advantages over other approaches that simply ask individuals to rate or rank variables of interest in order of importance; simple ranking approaches are subject to concerns about validity because stated policy decisions may differ from actual policies (e.g., Karren and Barringer, 2002;Sherer et al, 1987;Zacharakis and Meyer, 1998).…”

Section: Methodsmentioning

confidence: 99%

“…This fund, in turn, invests in a portfolio of entrepreneurial companies (companies in which a VC invests are referred to as the portfolio companies of the VC). A key characteristic that is consistently important to VCs in evaluating which companies to invest in is the quality of the leadership (or the founder) of the new venture (e.g., Hall and Hofer, 1993;MacMillan et al, 1985;MacMillan et al, 1987;Sexton and BowmanUpton, 1990;Shepherd, 1999;Shepherd et al, 2000;Tyebjee and Bruno, 1984;Zacharakis and Meyer, 1998;Zacharakis and Shepherd, 2005). More specifically, research has focused on the human capital of the founder(s) as a critical determining factor in VC evaluations.…”

Section: The Decision Criteria Of Venture Capitalistsmentioning

confidence: 99%

“…The research that specifi cally looks at VC evaluation supports the idea that prior related experience is positively evaluated. These forms of experience range from strategic and/or management experience (Hisrich and Jankowicz, 1990;Riquelme and Rickards, 1992;Zacharakis and Meyer, 2000) to industry experience (Hisrich and Jankowicz, 1990;Riquelme and Rickards, 1992;Zacharakis and Meyer, 2000), and specifi c startup experience (Hall and Hofer, 1993;Hisrich and Jankowicz, 1990;Zacharakis and Meyer, 2000). In general, prior start-up experience is an important indicator of success of the current venture in terms of survival (e.g., Batjargal, 2007), performance (e.g., Chandler, 1996) and VC funding and valuations (Hsu, 2007 We discussed the average aggregate effect of how VCs evaluate founders' human capital.…”

Section: The Decision Criteria Of Venture Capitalistsmentioning

confidence: 99%

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Values and judgment under uncertainty: evidence from venture capitalist assessments of founders

Matusik

George

Heeley

2008

Strategic Entrepreneurship

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We examine how judgments in the context of uncertainty vary, depending on the values of those making these judgments. We test these ideas in the context of venture capitalists' (VCs') evaluations of founders. Drawing on theoretical and empirical research on the role of values in judgment and decision making and on Schwartz's (1992Schwartz's ( , 1996 conceptualization of the basic motivational dimensions underlying human values, we hypothesize and fi nd that decision makers' process values (i.e., values governing the types of means to an end that an individual values) infl uence the perceived worth of founders' human capital. We discuss implications of these fi ndings for judgment and decision-making research, as well as practical implications for entrepreneurs and venture capitalists.

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Section: Methodsmentioning

confidence: 99%

Section: The Decision Criteria Of Venture Capitalistsmentioning

confidence: 99%

Section: The Decision Criteria Of Venture Capitalistsmentioning

confidence: 99%

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Values and judgment under uncertainty: evidence from venture capitalist assessments of founders

Matusik

George

Heeley

2008

Strategic Entrepreneurship

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“…This suggests that entrepreneurs should be able to benefit from knowing the particular evaluation criteria that potential investors use in their investment decisions. A number of earlier studies analyzed the evaluation criteria that are used in the decision making process of particular types of investors, especially VCs (Hall and Hofer, 1993;Henkel, 2006, 2008;Petty and Gruber, 2010). Hall and Hofer (1993) found that the characteristics of the founding members of a new venture did not seem to play a role in VCs evaluations.…”

Section: Introductionmentioning

confidence: 99%

“…A number of earlier studies analyzed the evaluation criteria that are used in the decision making process of particular types of investors, especially VCs (Hall and Hofer, 1993;Henkel, 2006, 2008;Petty and Gruber, 2010). Hall and Hofer (1993) found that the characteristics of the founding members of a new venture did not seem to play a role in VCs evaluations. However, Franke et al (2006) found that similarities between the personal characteristics of VCs and members of new ventures lead to a bias in the selection process.…”

Section: Introductionmentioning

confidence: 99%

Nascent ventures competing for start-up capital: Matching reputations and investors

Ebbers

Wijnberg

2012

Journal of Business Venturing

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While earlier studies focused on the general effects of corporate or individual reputations on attracting investment capital, a major contribution of this study is to distinguish between different types of reputations and different types of investors, and then analyze how particular types of reputations have an effect on particular types of investors. We do this by applying selection system theory, which is an approach to understanding competitive processes by focusing on the identity of the decision makers whose evaluations determine the outcome of these competitive processes. The three basic types of selectors are: market selectors, peer selectors and expert selectors.This tripartite classification allows us to categorize types of reputations on the basis of their sources. First, if a reputation is based on success in consumer markets, for example (end-) consumers' quality perceptions of a specific brand of shampoo, it can be linked to market selection. Second, a reputation type can be linked to expert selection if it originates from expert judgments. An example is a credit rating agency 4 such as Moody's. Third, if the reputation is based upon success among peers, for example winning an award at the 'Oscars' where the jury largely consists of other filmmakers, it can be linked to peer selection.At the same time types of investors can be categorized by considering both the characteristics and the goals of the investors making the investment decisions. First, if investors back a venture because they primarily hope that many consumers will like and buy the product they can be identified as market selectors. Second, if investors are (industry) peers of the founding members of the new venture they can be identified as peer selectors. Third, if they are neither market nor peer selectors they can be categorized as expert selectors. This tripartite categorization opens the way to the main argument of this paper: nascent organizations will be more successful in attracting investment capital from an investor if their founding members have performance-based reputations of a type that matches the type of the investor.In the empirical section of this paper we test this argument by studying the impact of the reputations of producers and directors on the investment decisions of the three main investors in the Dutch film industry: distributors, television broadcasters and the Film Fund. We find support for our main theoretical argument, IntroductionAn adequate resource base (Brush, Greene, Hart and Haller, 1993;Davidson and Honig, 2003;Parker and van Praag, 2006), and especially adequate financing Earlier studies applied selection system theory to study competition in product markets. For example, how winning or being nominated for an award impacts box office revenues of mainstream or art-house films (Gemser et al., 2008). Employing selection system theory to better understand the financing stage further tests the usefulness of this framework and also extends the theory itself.Our empirical setting is the Dutch film industr...

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Doing It Not Alone: Antecedents, Dynamics, and Outcomes of Venture Capital Syndication

Clercq

Dimov

2010

Venture Capital

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Venture capitalists' decision criteria in new venture evaluation

Cited by 393 publications

References 7 publications

Values and judgment under uncertainty: evidence from venture capitalist assessments of founders

Values and judgment under uncertainty: evidence from venture capitalist assessments of founders

Nascent ventures competing for start-up capital: Matching reputations and investors

Doing It Not Alone: Antecedents, Dynamics, and Outcomes of Venture Capital Syndication

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