Caprice versus standardization in venture capital decision making

Mainprize, Brent, Hindle, Kevin, Smith, Brock and Mitchell, Ron 2003, Caprice versus standardization in venture capital decision making, Journal of private equity, vol. 7, no. 1, Winter, pp. 15-25, doi: 10.3905/jpe.2003.320060.

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Title Caprice versus standardization in venture capital decision making
Author(s) Mainprize, Brent
Hindle, Kevin
Smith, Brock
Mitchell, Ron
Journal name Journal of private equity
Volume number 7
Issue number 1
Season Winter
Start page 15
End page 25
Publisher Institutional Investor, Inc. Journals Group
Place of publication New York, N. Y.
Publication date 2003
ISSN 1096-5572
Summary This study examined the criteria used by venture capitalists to evaluate business plans in order to make investment decisions. A literature survey revealed two competing theories: 'espoused criteria' where evaluation decisions are based on what venture capitalists say are the decisive factors, versus the use of 'known attributes' that successful ventures actually possess. Brunswik's Lens Model from Social Judgment Theory guided an empirical investigation of several different evaluation methods based on information contained in 129 business plans submitted for venture capital over a three-year period. Data evaluation culminated in the comparison of the percentage of correct decisions ('hit rate') for each method. We found that decisions based on the known attributes of successful ventures have significantly better hit rates than decisions made using espoused criteria. Discussion centered on the goal of achieving consistency in the conduct of venture analysis. Process standardization can aid in the achievement of consistency. Future research will both deepen and broaden insights.
Language eng
DOI 10.3905/jpe.2003.320060
Field of Research 150205 Investment and Risk Management
Socio Economic Objective 910499 Management and Productivity not elsewhere classified
HERDC Research category C3.1 Non-refereed articles in a professional journal
Copyright notice ©2003, Institutional Investor, Inc. Journals Group
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Management and Marketing
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