Entrepreneurial Uncertainty and Expert Evaluation: An Empirical Analysis

Management Science, forthcoming

40 Pages Posted: 2 Aug 2015 Last revised: 6 Mar 2019

See all articles by Erin Scott

Erin Scott

MIT Sloan School of Management

Pian Shu

Scheller College of Business, Georgia Tech

Roman Lubynsky

Massachusetts Institute of Technology (MIT)

Date Written: February 2019

Abstract

This paper empirically examines the evaluations of 537 ventures in high-growth industries performed by 251 experienced entrepreneurs, investors, and executives. These experts evaluated ventures by reading succinct summaries of the ventures, without meeting the founding teams, and their evaluations were not disclosed to the entrepreneurs. We find that experts can differentiate among early-stage ventures on grounds of quality beyond the explicit venture and entrepreneur characteristics contained in the written summaries. They can only do so effectively, however, for ventures in the hardware, energy, life sciences, and medical devices sectors; they cannot do so for ventures in the consumer products, consumer web and mobile, and enterprise software sectors. Our results highlight sector-specific heterogeneity in the information needed to effectively screen ventures, a finding that has implications for the design of optimal investment strategies.

Keywords: entrepreneurial uncertainty, early-stage firms, screening, expert evaluation, venture financing

JEL Classification: G32, L26, M13, O31

Suggested Citation

Scott, Erin and Shu, Pian and Lubynsky, Roman M., Entrepreneurial Uncertainty and Expert Evaluation: An Empirical Analysis (February 2019). Management Science, forthcoming. Available at SSRN: https://ssrn.com/abstract=2638367 or http://dx.doi.org/10.2139/ssrn.2638367

Erin Scott

MIT Sloan School of Management ( email )

Cambridge, 117592
United States

Pian Shu (Contact Author)

Scheller College of Business, Georgia Tech ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Roman M. Lubynsky

Massachusetts Institute of Technology (MIT) ( email )

120 Massachusetts Avenue
W31-306
Cambridge, MA 02139
United States
6173246900 (Phone)

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