The potential of actuarial decision models: Can they improve the venture capital investment decision?

Venture capitalists (VCs) are considered experts in identifying high-potential new ventures—gazelles. VC-backed ventures survive at a much higher rate than those ventures backed by other sources Kunkel and Hofer 1991, Sandberg 1986, Timmons 1994. Thus, the VC decision process has received tremendous attention within the entrepreneurship literature. Nonetheless, VC-backed firms still fail at a surprisingly high rate (20%). Moreover, another 20% of the VC's portfolio fails to provide any return to the VC. Therefore, there is room for improvement in the VC investment process.The three staged investment process often begins with venture screening. First, VCs screen the hundreds of proposals they receive to assess which deserve further consideration. Those ventures that survive the initial stage are then subjected to extensive due diligence. Finally, the VC and entrepreneur negotiate terms of the investment. Considering the amount of time that due diligence and negotiation of terms may take, it is imperative that VCs minimize their efforts during screening so that only those ventures with the most potential proceed to the next stage. Yet, at the same time, the screening process should also be careful not to eliminate gazelles prematurely. VCs are in a quandary. How can they efficiently screen venture proposals without unduly rejecting high potential investments? The answer may be to use actuarial decision aides to assist in the screening process.Actuarial decision aides are models that decompose a decision into component parts (or cues) and recombine those cues to predict the potential outcome. For example, an actuarial model about the VC decision might decompose a venture proposal into decisions about the entrepreneurial team, the product, the market, etc. The sub-component decisions are than recombined to reach an overall assessment of the venture's potential. Such models have been developed in a number of decision domains (e.g., bank lending, psychological evaluations, etc.) and been found to be very robust. Specifically, these models often outperform the very experts that they are meant to mimic.The current study had 53 practicing VCs participate in a policy capturing experiment. The participants examined 50 ventures and judged each venture's success potential; would the venture ultimately succeed or fail. Likewise, identical information about each venture was input into two different types of actuarial models. One actuarial model—a bootstrap model—used information factors that VCs had identified as being most important to making a good investment decision. The second actuarial model was derived by Roure and Keeley (1990). The Roure and Keeley model best distinguished between success and failure in a study of 36 high-technology ventures. The bootstrap model outperformed all but one participating VC (he achieved the same accuracy rate as the bootstrap model). The Roure and Keely model, although less successful than the bootstrap model, outperformed over half of the participating VCs.The implications of this study are that properly developed actuarial models may be successful screening decision aides. The success of the actuarial models may be attributed to their consistency across different proposals and time. The models always weight the information cues the same. VCs, as are all human decision makers, may often be biased by differing salient information cues that cause them to misinterpret or ignore other important cues. For example, a VC may overlook product weaknesses if (s)he is familiar with the entrepreneur putting forth a particular proposal. Although the current study developed a generalized actuarial model, each VC firm could create screening models that fit it's particular decision criteria. The models could then be used by junior associates or lower level employees to perform an initial screen of received venture proposals thereby freeing senior associates' time.     

A league of their own: services exporters – a developing country perspective

This paper provides a firm-level portrait of services exporters along with goods exporters in a developing country. Current findings of firm-level services trade literature suggest that the stylized facts of goods trade apply to services trade as well for a set of developed countries. This paper investigates if similar results hold for a developing country, Turkey, for the period 2003–2008. Most results lend support to the evidence found in the previous literature. However, the analysis of Turkish data shows that firms that export both goods and services are larger than those exporting goods or services only while multinationals that sell only goods are bigger than multinationals exporting both goods and services or those exporting only services.     

Attributions to intuition in the venture founding process: Do entrepreneurs actually use intuition or just say that they do?

Even though entrepreneurs often cite the use of intuition as a basis for their venturing decisions, verifying that entrepreneurs are actually using intuition is very difficult. We distinguish between entrepreneurs' attributions to intuition and their actual use of intuition. We propose characteristics of entrepreneurs that increase the likelihood that they will attribute intuition as a basis for decisions during the venture founding process. We then delineate characteristics that make the development and effective use of entrepreneurial intuition more likely. Theoretical implications for researchers studying intuition and practical implications for entrepreneurs using intuition are discussed.     

Cooperation versus competition: do buyers and suppliers really see eye-to-eye?

Purchasers have used a variety of tools to help improve the performance of their suppliers’ processes and products. Results of two large-scale surveys that compare buyer and supplier perceptions of a common customer firm's supplier development and its supply base's adoption of total quality management are reported here. One customer, known for its cooperative (partnership-like) approach to supplier relations, is contrasted with another firm that uses supplier switching to meet its procurement needs. Analysis of the survey data indicates that buyers and suppliers have a better “shared understanding” (smaller satisfaction gap) within the “competitive” relationship than within the “cooperative” relationship.     

At-home shopping: Will consumers let their computers do the walking?

How do consumers react to electronic shopping services? This article presents an overview of preliminary findings of major field experiments and surveys. It discusses consumer acceptance of at-home shopping and suggests implications of this innovation for marketing practitioners.     

“No sale” items in auctions: do they really matter?

Research interest in auctions has grown steadily in nearly every business discipline because of the distinctive constructs and processes that the data analyses yield. Auction data present researchers with a particular challenge because of the presence of no sale items. Researchers have varied in their accommodation of no sale items and the analysis technique, which may lead to biases in the analyses. The first question is how should no sale items be treated? To address this, the type of data generated by auctions must be examined, since various methods handle no sale items differently. Additional questions are: What analysis technique is preferred for this type of data? What is the effect of using other analysis techniques? The results suggest that including no sale items improves estimation accuracy. Also, we found that using ordinary least squares with censored data provides results that are much better than using truncated data.     

The entrepreneur's mode of entry: Business takeover or new venture start?

We extend the well-known occupational choice model of entrepreneurship by analyzing the mode of entry. Individuals can become entrepreneurs by taking over established businesses or starting up new ventures from scratch. We argue that the new venture creation mode is associated with higher levels of schooling whereas managerial experience, new venture start-up capital requirements and industry level risk promote the takeover mode. A sample of data on entrepreneurs from The Netherlands provides broad support for these hypotheses, and also bears out a prediction that entrepreneurs whose parents run a family firm tend to invest the least in schooling. We go on to discuss the implications for researchers, entrepreneurs and public policy makers.     

Public versus private venture capital: seeding or crowding out? A pan-European analysis

This paper analyzes the relationship between public and private sources of venture capital in Europe and the development of the industry, controlling for characteristics of the legal systems, in 15 European countries over the period 1990–1996. Large public participation is correlated with smaller VC industries, but analyses do not support the view that public venture capitalists are acting to seed the industry or that are they crowd-out private funds. On the contrary, public involvement seems to cause greater amounts of money to be invested in the industry as a whole. We argue that the effects of public intervention, whatever the motives, are real and probably result from demonstrating/sanctioning the social merit of venture capital and from signaling an enduring commitment to it.     

Technology and intermediation: do banks pass the gains to their customers?

A key function of the banking system is to facilitate intermediation between borrowers and lenders. In this paper we single out for attention the money transmission function of banks to test whether intermediation costs have been reduced by technology and passed on to consumers. Using data for the commercial banking sector in Ireland over the period January 1986 to August 1996, we find that the gains from technology in the provision of banking services, provided they exist, have not been passed on to the bank customers in the form of a lower bank interest rate spread.     

Self-employment of older Americans: do recessions matter?

As high unemployment rates linger following the latest recession, job opportunities can be sparse, especially for older workers. This might prompt older Americans to seek out opportunities in self-employment. Alternatively, recession-related decreases in economic activity might make self-employment less attractive. Using the Health and Retirement Study, we find that unemployed respondents are more likely to enter self-employment and that these decisions are clearly affected by recessions, although the effects differ by recession and gender. Unlike men, women’s self-employment decisions are very sensitive to other sources of household income, and women are less likely to become self-employed the deeper the recession.     

How do racial minority consumers process a model race cue in CSR advertising? A comparison of Asian and White Americans

This study proposes that model race and race of consumers play an important role in processing corporate social responsibility (CSR) advertising. The aim of the study is to examine why a racial mismatch between target consumers and featured model race might work better among Asian Americans in the context of CSR ads, guided by motivated reasoning and self-referencing information processing mechanisms. Through an experiment, the study finds that people who perceive that money means social status tend to have more positive responses to CSR ads regardless of their race or ethnicity. In addition, Asian Americans who highly equate money with status are likely to evaluate CSR ads featuring a white model more positively than the ad with an Asian model. The study also reveals that Asian Americans with higher money as status perception tend to self-reference only when they view the CSR ad featuring a white model, but not an Asian model. However, White Americans do not vary in self-referencing based on model’s race when viewing the CSR ads.     

Creativity is …: A metaphoric model of the creative thought process

This study applied a three-part metaphoric model of thinking to illuminate the creative thought process in developing marketing communications. The Zaltman Metaphor Elicitation Technique was used to categorize metaphorical statements about the creative process. Analysis found that these statements fit the model's tripartite structure of perception, movement, and object manipulation. These results suggest alternative paths for developing creative concepts, and also suggest a framework for understanding how best to use various techniques at different stages of the creative process.     

A space of one’s own: spatial and identity liminality in an online community of mothers

This paper investigates the role of an online community in the life of 11 Taiwanese women living in the UK and considers the implications this empirical case has for theorising about motherhood and the spatial dimensions of online/on-site space. Findings from a nethnographic and ethnographic fieldwork show how online discussions reflect and amplify the liminal identities of the community’s members. In looking at doing mothering at a collective rather than at the individual level, this study highlights how collective practices of consumption perpetuate liminal identities, exacerbating consumers’ sense of being out of place. It shows how online space is at the same time the product of online and on-site liminal identities and liminal social interactions and the re-producer of such interactions.     

Learning from own and others’ previous experience: the contribution of the venture capital firm to the likelihood of a portfolio company’s trade sale

The objective of this paper is to examine to what extent different venture capital firms contribute to the likelihood that the portfolio company in which they invested will realize a trade sale. We use arguments from learning theory to hypothesize the relationship between vicarious, experiential and congenital learning of the venture capital (VC) firm and the trade sale hazard of its portfolio companies. Based on our analysis of 206 VC-backed UK start-ups, we find that both trade sale experience of the VC and learning from syndicate partners with trade sale experience significantly increase the trade sale hazard. The routines and procedures learned from experienced syndicate partners complement experience accumulated through trial and error. Congenital trade sale experience of the investment managers on the contrary has no significant influence on the acquisition hazard.     

Managerial assessments of export performance: What do they reflect?

Export performance is often measured by managers’ subjective assessments, but little is known about what such assessments reflect. This article addresses this gap in the literature by analyzing the association between subjective and objective measures of export performance. We examined which aspects managers take into consideration when subjectively assessing the export performance of their firm. We also examined whether managers’ assessments had any predictive power concerning the future development of their firm’s export sales.Our empirical evidence is based on Norwegian small and medium-sized enterprises operating mainly in business-to business markets. Our analyses show that managers’ subjective assessment of export performance at the firm level is significantly associated with the percentage of the total firm sales that are exported. This is true for assessments of economic as well as non-economic performance. Subjective assessments, however, were not associated with actual export sales levels or with export growth.     

Antecedents and consequences of psychological contracts: Does organizational culture really matter?

Exploring the role of psychological contracts, this study proposes that different organizational cultures are associated with relational psychological contracts compared to transactional contracts while both types of contracts serve as mediators. While clan cultures positively impact relational contracts and are negatively associated with transactional contracts, hierarchical cultures have the reverse effect. In addition, psychological contract types mediate the two culture types' relationship to both organizational commitment and employee yearly earnings. In sum, clan cultures relate to more positive organizational outcomes than hierarchical cultures, a finding which as implications for future research and practice.     

Country of origin: A competitive advantage?

Country of origin has been identified in the literature as an important cue that might be used by global marketers to influence consumers' valuation of the brand. Its effect on consumer perceptions, affect and behavioral intentions has been widely documented, based on consumer surveys and laboratory experiments. Despite this empirical evidence, we argue that country of origin is only one extrinsic cue among many extrinsic and intrinsic cues available to the consumer in a real purchase situation. Furthermore, in real life, consumers are likely to engage in some level of information search, which would further dilute the country of origin effect in the marketplace. Based on these arguments, we conclude that country of origin might not necessarily lead to a competitive (dis)advantage in terms of a price premium or discount. For a sample of products, we show that the objective product quality varies significantly by country of origin, and that these differences are consistent with extant research on country of origin effects on consumers' perceptions. After controlling for quality differences across brands, we demonstrate that marketers from different countries charge prices that are justified by differences in product quality. Price premiums or discounts are therefore explained by differences in product quality rather than the image effect produced by the country of origin cue.     

IMC: Has anything really changed? A new perspective on an old definition

Integrated marketing communication (IMC) has emerged as a new concept in marketing in the twenty-first century. IMC is mostly thought of, taught and written about as simply the integration of advertising and promotional activities. However, this paper proposes IMC as a broader concept. It is more than a process or activity within an organisation: it is a system of belief or engagement, embedded in an organisation's culture, underpinned by communication and driven by technology and senior management. We identify seven major tenets of the integrated view of marketing communication within the IMC literature, and argue that early marketing concepts of the twentieth century are no longer valid. IMC can be seen as a new paradigm in marketing, equipped with central concepts that apply to many business environments.