FORM OR SUBSTANCE: THE ROLE OF BUSINESS PLANS IN VENTURE CAPITAL DECISION MAKING

FORM OR SUBSTANCE: THE ROLE OF BUSINESS PLANS IN VENTURE CAPITAL DECISION MAKING

images (6)DAVID KIRSCH,* BRENT GOLDFARB,and AZI GERA
Robert H. Smith School of Business, University of Maryland, College Park, Maryland,
U.S.A.

Decision makers are often forced to make fast decisions
with limited information (Eisenhardt, 1989;
Wally and Baum, 2003; Ocasio, 1997; Hansen
and Haas, 2001). Cognitive decision theory suggests
that in such settings individuals rely on cues
to facilitate decisions (Rosch, 1975). This study
advances understanding of the use of cues in strategic
settings by empirically identifying and characterizing
cues associated with successful resource
acquisition in the context of venture capital (VC)
funding.Venture screening is a particularly interesting
instance of fast decision making under uncertainty.
Venture capitalists review hundreds or even thousands
of proposals for every one that receives funding
(Goldfarb, Kirsch, and Pfarrer, 2005; Metrick,
2007). Time constraints prevent venture investors
from studying each proposal in detail; therefore,
investors make initial screening decisions based
upon sparse information and necessarily rely upon
shortcuts, or heuristics, to increase the speed of
decision making.

FORM OR SUBSTANCE: THE ROLE OF BUSINESS PLANS IN VENTURE CAPITAL DECISION MAKING

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