What you are is what you like—similarity biases in venture capitalists' evaluations of start-up teams

By Nikolaus Franke, Marc Gruber, Dietmar Harhoff, Joachim Henkel. 2006

397 citations recorded by the source corpus.

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.

Subfields: Accounting, Safety Research

View Paper: https://www.semanticscholar.org/paper/d8a322ff1c3b3d56f927d60b28f2fe9136347bd4

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Citations in the corpus

Social capital of venture capitalists and start-up funding (2012, background): “In addition to the capabilities and resources of the start-up and characteristics of its founders (Burton et al. 2002; Franke et al. 2006), VCs arguably have the highest level of influence in shaping and developing start-up firms (Audretsch and Thurik 2001; Hsu 2006).”
The Study of Bias in Entrepreneurship (2017, background): “Existing research has examined several country settings outside of the United States, including Singapore (Keh et al., 2002), Australia (Shepherd et al., 2003), Austria (Franke et al., 2006), Germany (Burmeister & Schade, 2007; Franke et al.; Grichnik, 2008), the Netherlands (Ebbers & Wijnberg, 2012”
Trademarks and Venture Capital Valuation (2014, neutral): “…throughout the investment process (Petty and Gruber, 2011) and include the personality and experience of the entrepreneur, product and business model characteristics, and market and financial characteristics (Franke et al., 2006; Ge et al., 2005; Macmillan et al., 1985; Zacharakis and Meyer, 2000).”
‘I Like How You Think’: Similarity as an Interaction Bias in the Investor–Entrepreneur Dyad (2011, methodology): “Although decision outcomes and observable characteristics of the founder are known to influence VC investment decisions (Franke et al., 2006; Shepherd and Zacharakis, 1999), we reveal the importance of similarity of decision-making processes between the VC and the founder.”
Is the crowd sensitive to distance?—how investment decisions differ by investor type (2017, neutral): “…costs (Coval and Moskowitz 2001); (2) ambiguity aversion of investors, who subjectively prefer more tangible information that will result in more visible and Bfamiliarity-biased^ investments (Huberman 2002; Franke et al. 2006); and (3) overoptimism toward Bhome^ assets (Lai and Teo 2008).”
Optimal distinctiveness: Broadening the interface between institutional theory and strategic management (2017, background): “Similarly, research in entrepreneurship has shown that investor evaluations of new ventures differ substantially, depending on the investor’s professional background (Franke et al., 2006), personal values (Matusik, George, and Heeley, 2008), and cognitive styles (Murnieks et al., 2011).”
The Strength of Strong Ties in an Emerging Industry: Experimental Evidence of the Effects of Status Hierarchies and Personal Ties in Venture Capitalist Decision Making: The Strength of Strong Ties (2015, neutral): “…to firm size, the firms in our sample are larger than the average U.S. and European venture capital firm.3 The average firm age, number of funds, deal size, and investor information of our sample of venture capitalists looks reasonable compared to other studies (e.g., Franke et al., 2006, 2008).”
"In pursuit of the real deal": A longitudinal study of VC decision making (2011, methodology): “…process and the criteria used to evaluate potential deals continue to interest scholars after more than forty years of research (e.g., Hoban, 1976; Tyebjee and Bruno, 1984; MacMillan et al., 1985, 1987; Khan, 1987; Shepherd, 1999; Zacharakis and Meyer, 2000; Franke et al., 2006; 2008).”
The Price of Policy Risk - Empirical Insights from Choice Experiments with European Photovoltaic Project Developers (2012, neutral): “In the “Attribute Importance” section, the relative importance of each attribute to the respondent is determined. The participants are asked to assign their importance to the difference between the most and the least relevant levels per attribute. As suggested by King et al. (2005), the "Attribute I”
Passion for entrepreneurship or passion for the product? A conjoint analysis of angel and VC decision-making (2018, background): “Finally, we build on research showing that experience can influence perceptions (Franke et al., 2006; Murnieks et al., 2011) to examine whether investors evaluate different types of passion differently depending on their own entrepreneurial experience and investing experience.”