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Uncovering Knowledge Structures of Venture Capital Investment Decision Making

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Author Info
Pankaj Patel
Rodney D’Souza
Abstract

Studies on venture capital (VC) investment decision using espoused criteria and utility aggregation methods have shown mixed results. Using a latent decision structures approach from psychological scaling literature, we reduce random and systematic biases arising from VC decision environment. In addition, we further address such biases using a combination of parametric and nonparametric techniques and practitioner specified decision criteria on 143 funded and nonfunded business plans. Compared to previous studies that have emphasized the central role of the venture team in obtaining funding, we find that (a) a good venture team is critical for not rejecting a business plan but is less critical for funding a business plan (b) a good venture team has decreasing returns even for funded ventures, but favorable competitive conditions and market potential have increasing returns.

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Paper provided by U.S. Small Business Administration, Office of Advocacy in its series The Office of Advocacy Small Business Working Papers with number 08pprd.

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Length: 32 pages
Date of creation: 2008
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Handle: RePEc:sba:wpaper:08pprd

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  18. Zacharakis, Andrew L. & Meyer, G. Dale, 1998. "A lack of insight: do venture capitalists really understand their own decision process?," Journal of Business Venturing, Elsevier, vol. 13(1), pages 57-76, January. [Downloadable!] (restricted)
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