When do spinouts benefit from market overlap with parent firms?

We examine how market overlap with parent organizations impacts the performance of startups founded by the former employees of these incumbent firms. Building on knowledge inheritance and competitive dynamics theories, we propose that the degree to which the operating markets of spinouts overlap with their parent organizations has a curvilinear relationship with their likelihood of survival. Market overlap is beneficial to spinouts because it reduces uncertainty during the early stages of new venture development. However, substantial market overlap may spark hostile actions by the parent organizations, thereby creating disruptive competition that may lower the likelihood of spinouts' survival. Furthermore, we hypothesize that the previous hierarchical position of founders in parent organizations moderates the overlap–performance relationship. Using a sample of European biotech spinouts and their parent firms, we find support for our hypotheses.     

New insights into venture capitalists' activity: IPO and time-to-exit forecast as antecedents of their post-investment involvement

We examine how VCFs' forecast of an IPO exit affects their breadth of advising and the likelihood of founder–CEO replacement shortly after they invest in a new venture. Moreover, we examine how the expected time-to-exit moderates these relationships. Our findings show that the likelihood of founder–CEO replacement upon receiving venture capital funding is significantly greater if a VCF perceives this company as a potential IPO as opposed to a trade sale, and this likelihood increases if the forecasted time-to-exit is short. We also illustrate how the breadth of advice varies as a function of the forecasted IPO and time-to-exit.     

The Big Five and venture survival: Is there a linkage?

This study examines the relationship of the entrepreneur's personality to long-term venture survival. We measure survival in two ways: (1) the likelihood the venture will survive for at least 8 years and (2) the overall life span of the venture. The “Big Five” personality attributes—extraversion, emotional stability, agreeableness, conscientiousness, and openness to experience provide the measures of the entrepreneur's personality. As hypothesized, the entrepreneur's conscientiousness was positively related to long-term venture survival. Contrary to expectations, we found a negative relationship between the entrepreneur's openness and long-term venture survival. Extraversion, emotional stability, and agreeableness were unrelated to long-term venture survival.     

Entrepreneurial inception: The role of imprinting in entrepreneurial action

Recent research highlights that founders' early decisions and the environmental conditions at founding each imprint upon a new venture in ways that affect growth and survival. However, we know much less about how the entrepreneur is imprinted and how the outcome of this imprinting process influences the entrepreneur and the venture. Through semi-structured interviews and content analysis, our study examines entrepreneurs' formative experiences during sensitive periods of transition, which we refer to as sources of imprint. We illustrate how these sources of imprint impact entrepreneurial decision making and explain how they guide entrepreneurs' decisions as they progress through their entrepreneurial careers. In doing so, we improve our understanding of how entrepreneurs navigate the entrepreneurial process.     

Will the startup succeed in your eyes? Venture evaluation of resource providers during entrepreneurs' informational signaling

Experienced founders and investors are arguably the venture community members most likely to possess needed financial and social resources for startups. We present a model of venture evaluation where entrepreneurs solicit these resource providers for needed financial and social resources. Our model addresses how resource providers' venture investment propensity influences their evaluation of entrepreneurs' informational signals and how their venture evaluation predicts their willingness to provide financial and social resources. We test our model using real-time decisions and find resource providers with founding experience (both non-investor founders and investors with founding experience) leverage their investment propensity more than non-founder investors when evaluating new ventures. In addition, our post-hoc analysis reveals that resource providers' founding experience is associated with their willingness to confer social resources. Overall, this paper focuses on the perspective of resource providers and addresses how their investment propensity, types of venturing experience, and venture evaluation influence their willingness to render resource support to new ventures.     

Missing the boat or sinking the boat: a study of new venture decision making

Taking two conceptualizations of risk, Dickson and Giglierano's [J. Mark. 50 (1986) 58] nautical analogy of entrepreneurial risk (sinking vs. missing the boat) to represent the likelihood of loss element of new venture risk, and March and Shapira's [Manage. Sci. 33 (1987) 1404] risk as hazard (boat size) to represent the magnitude of loss element of new venture risk, we investigated how two contextual factors, the suitability of entrepreneurs' skills and their sources of funds, and two individual differences factors, the entrepreneurs' risk propensities and their perceptions of risk, influence their new venture decision making. Metaphorically speaking, we found that most entrepreneurs would rather risk missing than sinking the boat, and that they preferred to pilot bigger craft than smaller ones. Perhaps surprisingly, our sample of highly successful entrepreneurs made relatively risk-averse choices, with 83% choosing either of the two ventures for which the chances for loss were lowest. We also found that the source of new venture funding—the entrepreneur's own money versus that of investors—influenced our subjects' choices between ventures whose chances for loss or gain differed. A similar effect was found for the entrepreneur's risk propensity. On the other hand, we found that the risk the entrepreneurs perceived in the choice set also influenced choices, but only where the magnitude of the new venture's potential gain or loss varied. When viewed in total, our study and results suggest a risk- and reward-based typology of new venture opportunities, one that may provide a conceptual foundation for future explorations of a variety of questions relevant for entrepreneurs and theorists alike.     

Perceived risks and choices in entrepreneurs' new venture decisions

Though risk plays a central role in most entrepreneurial decision making, little empirical research has explicitly examined how the elements of risk, risk perceptions, and entrepreneurs' propensities to take risks influence choices among potentially risky entrepreneurial ventures. This experimental study asked a sample of entrepreneurs leading America's fastest growing firms to make choices among a series of hypothetical new ventures. The results indicate that such choices are influenced by the risks inherent in the new ventures, as evidenced by the pattern of outcomes anticipated in each venture, the entrepreneurs' differing perceptions of those risks, and differences in their personal propensities to take risks.The subjects in our sample of entrepreneurs tended not to choose ventures having a high degree of variability in their pattern of anticipated outcomes. This avoidance of outcome variability suggests that the sensitivity analyses commonly prescribed for examining new venture attractiveness may inhibit risk taking, and may deter potential investors from investing in their firms. New approaches to assessing and presenting new venture risk, other than the traditional best case/expected case/worst case approach, may be advisable, as well as sufficiently through market research to provide evidence of the degree to which market acceptance is likely for the venture's products or services.We also found an effect of differences in risk propensities among entrepreneurs on their new venture choices. This effect suggests not only that entrepreneurs should be wary of any biases they bring to their new venture decisions, but that prospective investors should consider the degree to which entrepreneurs in whom they choose to invest are well-matched to the investors' own risk-taking propensities.Finally, while our sample of entrepreneurs tended to shun high levels of variability in their new venture choices, they appeared willing to accept a considerable degree of hazard, or possible downside, in their new venture choices, presumably in pursuit of potentially significant gains. Entrepreneurs are advised to seek a clear understanding of the downside entailed in their proposed ventures, and develop strategies to mitigate the likelihood of adverse outcomes. Thus they will not jeopardize chances for near term success and attracting support of investors and others in later stages of the venture or in subsequent ventures.Our research did not attempt to examine how our subjects' choices would have played out in terms of performance, but the apparent biases which entrepreneurs' risk propensities bring to their assessment of proposed new ventures is a potentially important issue that merits further scrutiny. On one hand, such biases may lead to patterns of suboptimal decisions. On the other hand, our results suggest that investors should entrust their new venture investments to entrepreneurs whose risk propensities (and perhaps other personal characteristics) best match the needs of both the opportunity at hand and the investor's objectives. As many venture capitalists attest, the management of a proposed new venture should lie at the heart of their investment decision.     

New venture survival: Ignorance,external shocks,and risk reduction strategies

Although scholars have long recognized the increased mortality risk that new ventures face in terms of a “liability of newness,” most of the discussion around this risk has been in terms of the contextual constraints that new ventures face and the difficulties that managers have in overcoming them. This emphasis is in part a reflection of the perils of newness but also stems from the retrospective and aggregate perspective taken by researchers. Although the macro-level perspective of new venture mortality has made a significant contribution to our knowledge of mortality risk patterns, there has been little interest in identifying how venture managers can address the risks that all new organizations face.We argue that in order to make progress in explaining new venture survival, a theoretical model is required that uses a more micro-level perspective to explain new venture failure (and the flip side, new venture survival). In this paper we develop such a model. We establish a definition of mortality risk and argue that the liability of newness is largely dependent on the degree of novelty (ignorance) associated with a new venture. Novelty is viewed in three different dimensions, viz.: to the market, to the technology of production and to management. Novelty to the market concerns the degree to which the customers are uncertain about the new venture. Novelty in production concerns the extent to which the production technology used by the new venture is similar to the technologies in which the production team has experience and knowledge. Novelty to management concerns the entrepreneurial team's lack of business skills, industry specific information and start-up experience. We argue that mortality risk increases with the degree of novelty in each dimension and with the number of dimensions in which the new venture is novel.We propose that the decline in mortality risk occurs as the venture's novelty in each of the three dimensions is eroded by information search and dissemination processes. This allows the new firm to become an established business and explains what we term the “evolutionary” path of mortality—novelty and risk decline monotonically, after a period of adolescence, as ignorance decays over time due to `passive learning'. We also propose that there is a “strategic” mortality risk path that reflects the impact of positive and negative shocks (shocks are exogenous events that alter the overall degree of novelty at a point in time— positive shocks decrease overall novelty, while negative shocks increase overall novelty) and reversals (endogenous actions that increase the overall novelty of the new venture at a point in time) on the mortality risk of a new venture.If the incidence and effects of these disruptions can be managed, then venture managers may be able to mitigate the mortality risk for their venture. We argue that risk reduction strategies can be employed, most of which impact on one or more of the dimensions of mortality risk in order to increase the firm's chances of survival. A series of risk reduction strategies are proposed and their impact on the determinants of mortality risk is considered.     

Anger punishes,compassion forgives: How discrete emotions mitigate double standards in consumer ethical judgment

Prior research has identified that consumers may judge similar unethical behaviors differently depending on the actor in such behaviors; a phenomenon called double standards. While some studies have examined why consumer double standards may occur, it is less clear how to mitigate their occurrence. The present study examines the role of different, discrete emotions – anger and compassion – in mitigating double standards using two experimental studies, involving a total of 562 participants from Indonesia. The results indicate the existence of double standards, in that consumers were harsher in their judgment of unethical conduct by prosperous (vs. non-prosperous) companies. More importantly, the findings establish that anger and compassion can diminish double standards in consumer ethical judgments. Furthermore, these emotion effects are explained by two distinct mechanisms. Specifically, anger reduces repurchase likelihood when mediated by perceived justice, while compassion mediated by forgiveness increases repurchase likelihood. The research limitations and implications are also discussed.     

A founding-team model of creating a venture's culture

As many new ventures are started by founding teams, it is these founding teams that likely engage in creating their venture's culture. We draw on theories of cultural dynamics and the literature on team cognitive diversity to investigate the creation of a new venture's culture. Specifically, we theorize how a founding team's cognitive diversity impacts the team's production of cultural information and the transmission of that information throughout the venture. Cognitive diversity directly influences the founding team's production of cultural information by shaping the diversity of the information set and the speed of its production. Moreover, cognitive diversity can give rise to faultlines within the venture, impacting how venture members interpret cultural information. Importantly, our model suggests a complex interplay between the production and interpretation of cultural information. Understanding culture creation in new ventures is important because a new venture's culture shapes its legitimacy and thus its access to stakeholder resources for venture emergence.     

The evolution of interorganizational relationships in emerging ventures: An ethnographic study within the new product development process

Emerging ventures rarely have the resources they need, which often force them to reach beyond their boundaries to access these resources. While the field has acknowledged how critical external relationships are in the emergence process, we lack an understanding of how these relationships evolve. Drawing on fourteen longitudinal case studies, this article begins to fill that gap by examining how emerging ventures use interorganizational relationships to discover, develop, and commercialize new products. We found that emerging ventures tended to establish outsourcing relationships early and that many outsourcing relationships progressed into alliances. This suggests that these early relationships are dynamic, evolve through the emergence process, and may be critical to the successful emergence of a venture. We also discovered that many entrepreneurs developed strong socioemotional bonds with their alliance partners. Unexpectedly, our study revealed that in many cases these socioemotional bonds clouded the entrepreneur's judgment of the partner's abilities and led to problems that threatened the venture's survival.     

Networking Ability and the Financial Performance of New Ventures: Moderating Effects of Venture Size,Institutional Environment,and Their Interaction

Building on prior research, this study provides insights on the complex interaction between individual, organizational, and environmental factors in the field of new venture success. Specifically, we develop and test hypotheses on how venture size, institutional context, and their interaction moderate the effect of entrepreneurs' networking ability on the financial performance of new ventures. Based on a sample of 283 new ventures in Germany and Brazil—two countries that differ significantly in terms of their institutional frameworks—our analyses reveal moderating effects of venture size and the interaction between venture size and institutional environment.     

How images and color in business plans influence venture investment screening decisions

We explore how product images and color in business plans influence venture investment screening decisions. Because images are accessible, memorable, and influential, we argue that product images in a business plan will increase the likelihood of favorable judgments during screening decisions. Moreover, because red and blue automatically affect an individual's cognition in different manners such that red elicits negative associations and blue elicits positive ones from the evaluators, we predict that the use of red in a business plan will decrease the favorability of judgments during screening decisions, while the use of blue will increase their favorability. Using a quasi-experimental field study and a series of controlled experiments, we find partial support for a positive effect of product images on favorable screening decisions and a consistent negative effect of red on favorable screening decisions.     

Cognitive biases,risk perception,and venture formation: How individuals decide to start companies

Despite the high risk involved, thousands of individuals decide to start ventures. Past research, however, has found that entrepreneurs do not have a high-risk propensity, that is, a great willingness to knowingly take risks. This study, therefore, explores how individuals cope with the risks inherent in their decisions, and suggests that entrepreneurs may not perceive the riskiness of starting ventures.The study's findings suggest that risk perceptions may differ because certain types of cognitive biases lead individuals to perceive less risk. Cognitive biases are common types of mental shortcuts used to make judgments. This study examines three cognitive biases that previous research has suggested may lower risk perception. The first, overconfidence, refers to the failure to know the limits of one's knowledge. The second bias tested, the illusion of control, occurs when individuals overemphasize the extent to which their skill can increase performance in situations where chance plays a large part and skill is not necessarily the deciding factor. Because the individuals believe that they can control largely uncontrollable events, they also think they can accurately predict the outcome of the events. Finally, the third bias, the belief in the law of small numbers occurs when an individual uses a limited number of informational inputs (a small sample of information) to draw firm conclusions.This study's sample consisted of 191 students pursuing a Masters of Business Administration. The students' responses to a survey based on a case study regarding a decision to start a venture were examined. The survey included questions about the students' willingness to start the venture, their perception of the venture's riskiness, and the extent to which they exhibited cognitive biases in their decision processes.The study's findings tentatively suggest that individuals start ventures because they do not perceive the risks involved, and not because they knowingly accept high levels of risks. The belief in the law of small numbers lowered an individual's perceptions of a venture's riskiness, suggesting that some individuals draw firm conclusions from small samples. An illusion of control also decreased risk perception, suggesting that individuals starting ventures might not acknowledge that certain tasks, important to the venture's success, are beyond their control.Some argue that biases might be associated with venture failure. If this is the case, the very processes that increase the likelihood of starting a venture may actually decrease performance. Entrepreneurs may choose to minimize their biases by soliciting and paying heed to the advice of outsiders, or by using group decision-making techniques, such as devil's advocacy or dialectical inquiry.Others, however, suggest that early in the decision process, biases may be beneficial because they lower risk perception, which allows entrepreneurs to generate the commitment needed for success. Even if this is true, entrepreneurs should still institute processes to increase learning so the venture can adjust to unfolding realities and avoid any damage caused by initial misperceptions. Similarly, entrepreneurs need adequate safety nets in case their biases lead them to encounter unforeseen difficulties. The potential positive and negative effects of biases and perceiving low levels of risk suggest the importance of exploring this area further.     

Prediction and control under uncertainty: Outcomes in angel investing

Venture investing plays an important role in entrepreneurship not only because financial resources are important to new ventures, but also because early investors help shape the ventures' managerial and strategic destiny. In this study of 121 angel investors who had made 1038 new venture investments, we empirically investigate angel investors' differential use of predictive versus non-predictive control strategies. We show how the use of these strategies affects the outcomes of angel investors. Results show that angels who emphasize prediction make significantly larger venture investments, while those who emphasize non-predictive control experience a reduction in investment failures without a reduction in their number of successes.     

Toward a theory of international new venture survivability

In this longitudinal study, we explore in-depth how entrepreneurs acquire legitimacy for their new ventures in an attempt to internationalise and survive before and after the dot.com bubble. We adopted a longitudinal multiple-case study methodology for the purpose of theory building. Five firms were selected on the basis of purposeful sampling logic from a homogeneous empirical context: they were small, software firms from Scotland that internationalised and struggled for survival between 1999 and 2001. To explore these companies’ critical events and episodes, the method of critical incident technique was employed. The method of constructing typologies by reduction was employed to advance the typology of hype defined as the overall sentiment of the environmental context, within which the firm is embedded, about the future. Grounded in data, there emerged a middle-range theory of international new venture survivability that postulates that the closer the new venture is to the hype, the higher the likelihood of failure. Several implications to the theory of new venture legitimacy could be singled out. The paper makes an attempt to understand the nature of a legitimacy threshold. The data in the study points to the continuous nature of the legitimacy threshold and suggest that it may be defined by the time when the emergent industry moves away from hype towards risk decision making settings. A set of propositions is put forward to stimulate future research in the area of new venture legitimacy.     

Speed of internationalization of new ventures and survival in export markets

Speed of internationalization may refer to how early a new venture goes abroad as well as how fast it expands its activities post-entry. The present paper incorporates both aspects and analyzes to what extent several dimensions of speed influence the ability of new ventures to survive in export markets. Based upon extant theories, two perspectives are deduced – a Learning perspective and a Resource perspective – leading to partly contrasting hypotheses. The hypotheses are tested based upon a unique data set consisting of all new ventures established in Norway a specific year that started to export goods in the following nine years. Among the findings are that survival rates increase when ventures go international immediately after inception and when they expand rapidly into new countries rather than focusing on expanding their export share in a limited number of markets, thus lending support to the Resource perspective.     

The determinants of foreign partner's equity ownership in Southeast Asian joint ventures

Using a sample of 375 equity joint venture agreements between 2 partners in 6 Southeast Asian countries, we document the active role of Asian companies in driving the flow of joint venture activity in this region and provide a comparative analysis of joint ventures in transitional and non-transitional Southeast Asian countries. Specifically, we analyze the relationship between the foreign partner's equity ownership and partner uncertainty, the types of joint venture activities, and the frequency of transactions between the joint venture partners. In addition, we show that the relationship between the foreign partner's equity ownership and partner uncertainty, as proxied by cultural dissimilarity, depends on the types of joint venture activities. In the case of Vietnam, a transitional economy, the evidence suggests that, in the presence of a weak legal and regulatory system, foreign firms are entering the country on a smaller scale and are more prone to informal, relational contracting as a substitute for legal enforcement.     

New Venture Performance in Transition Economies from Different Institutional Perspectives

Building on institutional theory, this study examines the effects of dysfunctional competition and government ties on new venture performance in transition economies. And, it goes deeper to investigate how these effects are contingent on a new venture's entrepreneurial orientation (EO). It finds that EO weakens the negative relationship between dysfunctional competition and new venture performance but exacerbates the negative linkage of government ties to new venture performance. The findings not only illustrate how government impacts new venture performance in transition economies, but also indicate that new ventures can leverage entrepreneurship to cope with the effects of government‐related factors.     

Dysfunctional competition & innovation strategy of new ventures as they mature

Drawing on a sample of 288 new ventures from three disperse locations in China, we examine how dysfunctional competition impacts the innovation strategy of new ventures as they mature. Our results show that: 1) innovation strategy has a positive effect on new venture competitive advantage; 2) the impact of dysfunctional competition positively moderates this relationship in the early stages of the venture; 3) dysfunctional competition negatively moderates it as the venture matures. Thus, dysfunctional competition forces new ventures to focus on their resource shortages through innovation strategy. However, as these ventures mature, they accumulate greater resources, and dysfunctional competition acts to limit the firm's competitive advantage. With these findings, we contribute to the theoretical understanding of innovation strategy in a dysfunctional competition environment and how new ventures strive for competitive advantage in such a setting.