A non-additive decision-aid for venture capitalists' investment decisions

A non-additive decision-aid for venture capitalists' investment decisions

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Article ID: iaor200643
Country: Netherlands
Volume: 162
Issue: 3
Start Page Number: 673
End Page Number: 689
Publication Date: May 2005
Journal: European Journal of Operational Research
Authors: ,
Keywords: decision theory
Abstract:

The current study uses theory from the resource-based view of strategy to hypothesize that VCs use non-additive decision policies when making their investment decision. A policy capturing experiment finds that VCs do indeed use non-additive decision policies. Specifically, we find that interactions between leadership experience and other internal resources, and between leadership experience and environmental munificence, affect venture capitalists' decision-making. Although venture capitalists always prefer greater general experience in leadership, they value it more highly in large markets, when there are many competitors, and when the competitors are relatively weak. Previous start-up experience of the venture's management team may substitute for leadership experience. Building on these results, we tested a main-effects-only decision-aid and a decision-aid that included interaction terms (non-additive) and found that both outperformed VC's own decisions.

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