A Non-Additive Decision-Aid for Venture Capitalists' Investment Decisions

Posted: 17 Nov 2009

See all articles by Andrew Zacharakis

Andrew Zacharakis

Babson College - Arthur M. Blank Center for Entrepreneurship

Dean Shepherd

University of Colorado at Boulder - Department of Management

Date Written: 2005

Abstract

Six hypotheses are developed that investigate theconcept that venture capitalists (VCs) use non-additive decision policies whenmaking investment decisions. Also examined is how VCs evaluate entrepreneurs'leadership experience, a firm resource that can lead to a competitive advantagein conjunction with other important criteria for predicting new venturesuccess. A decision aid is constructed and its performance is tested using data on 41practicing VCs. A policy-capturing experiment finds that VCs do indeed usenon-additive decision policies. In addition, the interactions betweenleadership experience and other internal resources and between leadershipexperience and environmental munificence affect VCs' decision making. These findings were the basis for a test of a main-effects only decision aidand a decision aid that included interaction terms (non-additive) and whichfound that both outperformed VC's own decisions. Conclusions support thecontention that VCs use interaction terms in making their decisions, and thestudy constructs a non-additive decision aid that better predicts outcome thanVC's actual predictions. (JSD)

Keywords: Decision aids, Leadership, Risk assessment, Startups, Venture capitalists, Management decisions

Suggested Citation

Zacharakis, Andrew and Shepherd, Dean, A Non-Additive Decision-Aid for Venture Capitalists' Investment Decisions (2005). European Journal of Operational Research, Vol. 162, Issue 3, p. 673-689 2005. Available at SSRN: https://ssrn.com/abstract=1506810

Andrew Zacharakis (Contact Author)

Babson College - Arthur M. Blank Center for Entrepreneurship ( email )

Babson Park, MA 02457-0310
United States

Dean Shepherd

University of Colorado at Boulder - Department of Management ( email )

Boulder, CO 80309-0419
United States
303-492-5962 (Fax)

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