Prediction and control under uncertainty: Outcomes in angel investing

By Robert Wiltbank, Stephen J. Read, Nicholas Dew, S. Sarasvathy. 2009

454 citations recorded by the source corpus.

Venture investing plays an important role in entrepreneurship not only because financial resources are important to new ventures, but also because early investors help shape the ventures' managerial and strategic destiny. In this study of 121 angel investors who had made 1038 new venture investments, we empirically investigate angel investors' differential use of predictive versus non-predictive control strategies. We show how the use of these strategies affects the outcomes of angel investors. Results show that angels who emphasize prediction make significantly larger venture investments, while those who emphasize non-predictive control experience a reduction in investment failures without a reduction in their number of successes.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/ca9731d62021c582eb350ff0b9a603bcc5142e98

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Citations in the corpus

Do Effectuation Processes Shape the Relationship between Product Diversification and Performance in New Ventures? (2017, background): “Wiltbank et al. (2009) also argue that a flexible approach enables the creative use of surprise, which is a regular part of the process under conditions of uncertainty, as a resource in transforming the event space.”
A Review and Road Map of Entrepreneurial Equity Financing Research: Venture Capital, Corporate Venture Capital, Angel Investment, Crowdfunding, and Accelerators (2017, background): “Angel research has taken an interest in individual investor decisions, in particular the internal processes and approaches of angel investment decision making (Wiltbank et al., 2009). Maxwell, Jeffrey, and Lévesque (2011) found that angels utilize cognitive processes that tend to be stage dependent:”
Effectuation or causation: An fsQCA analysis of entrepreneurial passion, risk perception, and self-efficacy (2018, background): “In a complex and uncertain setting such as the entrepreneurial context, however, predictions are less accurate and useful (Dew, Read, Sarasvathy, & Wiltbank, 2009; Read, Song, & Smit, 2009).”
Career motives and entrepreneurial decision-making: examining preferences for causal and effectual logics in the early stage of new ventures (2011, background): “We also suggest that scholars interested in measure development related to effectuation in survey research take a further look at other recent attempts to operationalize effectual and causal decision-making (see for example Wiltbank et al. 2009 ).”
Corporate effectuation: Entrepreneurial action and its impact on R&D project performance (2012, background): “In 2009, first steps towards quantitative assessment were made (e.g., Read et al., 2009b; Wiltbank et al., 2009) and in 2010, Chandler, DeTienne, McKelvie and Mumford developed a measurement scale in the entrepreneurial context.”
Understanding dynamics of strategic decision-making in venture creation : a process study of effectuation and causation (2015, background): “…influencing strategic decision-making such as entrepreneurial expertise (e.g., Dew et al., 2009; Sarasvathy, 2001), which cannot explain shifts in the use of effectual and causal logic over time; or otherwise focuses on uncertainty at founding (e.g., Wiltbank et al., 2009; Read et al, 2009a).”
Social interaction via new social media: (How) can interactions on Twitter affect effectual thinking and behavior? (2011, background): “…term effectuation refers to a logic that entails “molding and enhancing initiatives, formulating new goals and creating new opportunities rather than positioning oneself within environments largely outside one's control or taking opportunities as exogenously given” (Wiltbank et al., 2009, p. 129).”
What matters, matters differently: a conjoint analysis of the decision policies of angel and venture capital investors (2014, background): “large funds from a pool of outside investors and seek to maximize returns from the entire portfolio of ventures they had invested for their outside investors rather than from any single venture, angel investors oftentimes were experienced company executives or ex-entrepreneurs (Landström 1998; Morri”
Affordable loss: behavioral economic aspects of the plunge decision (2009, background): “In a recent empirical paper, Wiltbank et al. (2009) tests these predictions using data from a sample of angel investors (wealthy individuals who act as informal venture capitalists by placing their own money directly into early stage new ventures).”
Expect the unexpected: examining the shaping role of entrepreneurial orientation on causal and effectual decision-making logic during economic crisis (2018, background): “Additionally, it was found that focusing on effectual logic results in fewer failed investments (Wiltbank et al. 2009) and helps highly innovative R&D projects succeed (Brettel et al. 2012).”