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Prediction and control under uncertainty: Outcomes in angel investing

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  • Wiltbank, Robert
  • Read, Stuart
  • Dew, Nicholas
  • Sarasvathy, Saras D.
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    Abstract

    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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Venturing.

    Volume (Year): 24 (2009)
    Issue (Month): 2 (March)
    Pages: 116-133

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    Handle: RePEc:eee:jbvent:v:24:y:2009:i:2:p:116-133

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    Web page: http://www.elsevier.com/locate/jbusvent

    Related research

    Keywords: Angel investing Decision-making Prediction Control Effectuation Uncertainty;

    References

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    1. Prowse, Stephen, 1998. "Angel investors and the market for angel investments," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 785-792, August.
    2. Gifford, Sharon, 1997. "Limited attention and the role of the venture capitalist," Journal of Business Venturing, Elsevier, vol. 12(6), pages 459-482, November.
    3. Jain, Bharat A., 2001. "Predictors of performance of venture capitalist-backed organizations," Journal of Business Research, Elsevier, vol. 52(3), pages 223-233, June.
    4. Lerner, Joshua, 1994. "Venture capitalists and the decision to go public," Journal of Financial Economics, Elsevier, vol. 35(3), pages 293-316, June.
    5. Mason, Colin M. & Harrison, Richard T., 2002. "Is it worth it? The rates of return from informal venture capital investments," Journal of Business Venturing, Elsevier, vol. 17(3), pages 211-236, May.
    6. Thomas Hellmann & Manju Puri, 2002. "On the fundamental role of venture capital," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 19-23.
    7. Anderson, Philip & Tushman, Michael L, 2001. "Organizational Environments and Industry Exit: The Effects of Uncertainty, Munificence and Complexity," Industrial and Corporate Change, Oxford University Press, vol. 10(3), pages 675-711, September.
    8. James G. March & Zur Shapira, 1987. "Managerial Perspectives on Risk and Risk Taking," Management Science, INFORMS, vol. 33(11), pages 1404-1418, November.
    9. Buchanan, James M. & Vanberg, Viktor J., 1991. "The Market as a Creative Process," Economics and Philosophy, Cambridge University Press, vol. 7(02), pages 167-186, October.
    10. Vance H. Fried & Robert D. Hisrich, 1994. "Toward a Model of Venture Capital Investment Decision Making," Financial Management, Financial Management Association, vol. 23(3), Fall.
    11. Saras Sarasvathy & Nicholas Dew, 2005. "New market creation through transformation," Journal of Evolutionary Economics, Springer, vol. 15(5), pages 533-565, November.
    12. Einhorn, Hillel J & Hogarth, Robin M, 1986. "Decision Making under Ambiguity," The Journal of Business, University of Chicago Press, vol. 59(4), pages S225-50, October.
    13. Vance H. Freid & Robert D Hisrich, 1994. "Toward a Model of Venture Capital Investment Decision Making," Financial Management, Financial Management Association, vol. 23(3), Fall.
    14. Gupta, Anil K. & Sapienza, Harry J., 1992. "Determinants of venture capital firms' preferences regarding the industry diversity and geographic scope of their investments," Journal of Business Venturing, Elsevier, vol. 7(5), pages 347-362, September.
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    Citations

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    Cited by:
    1. Jonas Gabrielsson & Diamanto Politis, 2011. "Career motives and entrepreneurial decision-making: examining preferences for causal and effectual logics in the early stage of new ventures," Small Business Economics, Springer, vol. 36(3), pages 281-298, April.
    2. Chandler, Gaylen N. & DeTienne, Dawn R. & McKelvie, Alexander & Mumford, Troy V., 2011. "Causation and effectuation processes: A validation study," Journal of Business Venturing, Elsevier, vol. 26(3), pages 375-390, May.
    3. Fischer, Eileen & Reuber, A. Rebecca, 2011. "Social interaction via new social media: (How) can interactions on Twitter affect effectual thinking and behavior?," Journal of Business Venturing, Elsevier, vol. 26(1), pages 1-18, January.
    4. Maxwell, Andrew L. & Jeffrey, Scott A. & Lévesque, Moren, 2011. "Business angel early stage decision making," Journal of Business Venturing, Elsevier, vol. 26(2), pages 212-225, March.
    5. Brettel, Malte & Mauer, René & Engelen, Andreas & Küpper, Daniel, 2012. "Corporate effectuation: Entrepreneurial action and its impact on R&D project performance," Journal of Business Venturing, Elsevier, vol. 27(2), pages 167-184.
    6. Nofsinger, John R. & Wang, Weicheng, 2011. "Determinants of start-up firm external financing worldwide," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2282-2294, September.

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