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  • Author or Editor: Andrew L. Zacharakis x
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Andrew L. Zacharakis and Dean A. Shepherd

Venture capitalists (VCs) are considered experts in identifying high potential new ventures - gazelles. Thus, the VC decision process has received tremendous attention within the entrepreneurship literature. Yet, most studies on VC decision-making focus on which decision criteria are central to selecting gazelles. Although informative, the majority of these studies has neglected cognitive differences in how VCs make decisions. This is surprising considering the influence cognitive differences are likely to have on the exploitation of an opportunity as well as its influence on likely success. The current study investigates whether VCs are overconfident, as well as the factors surrounding the decision that lead to overconfidence. Overconfidence describes the tendency to overestimate the likely occurrence of a set of events. Overconfident people make probability judgments that are more extreme than they should, given the evidence and their knowledge. In the case of the new venture investment decision, overconfident VCs may overestimate the likelihood that a funded company will succeed. The results of the current study indicate that VCs are indeed overconfident (96% of the 51 participating VCs exhibited significant overconfidence) and that overconfidence negatively affects VC decision accuracy (the correlation between overconfidence and accuracy was 0.70). The level of overconfidence depended upon the amount of information, the type of information, and whether the VC strongly believes the venture will succeed or fail.
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Andrew L. Zacharakis, Jeffery S. McMullen and Dean A. Shepherd

This paper examines the influence of economic institutions upon venture capitalists' (VCs) decision policies. We conducted policy-capturing experiments on 119 VCs across three countries, representing distinct economic institutions (US, mature market economy; South Korea, emerging economy; and China, transitional economy). Results show that VCs in rules-based market economies (US) rely upon market information to a greater extent than VCs in emerging economies (Korea), and Chinese VCs (transitional economy) weight human capital factors more heavily than either US or Korean VCs. Findings suggest that, although professional institutions may dictate which information is included in VC decision policies, the extent to which that information emphasized is determined partly by the economic institution in which the decision-maker operates.