Decision-making style in entrepreneurial finance and growth

Laurence Cohen () and Peter Wirtz
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Laurence Cohen: University of Jean Moulin Lyon 3, IAE Lyon, UR Magellan

Small Business Economics, 2022, vol. 59, issue 1, No 10, 183-210

Abstract: Abstract Comparing one hyper-growth venture with one moderate growth venture, we show that growth paths critically depend on the founders’ capability to leverage BAs’ and VCs’ financial and cognitive resources in an ongoing process of interaction. Dynamically matching specific entrepreneurs’ and investors’ decision-making styles is critical for shaping heterogeneous growth paths, as investors and entrepreneurs interact. Specifically, sharing a predictive decision-making style among VCs, BAs and entrepreneurs facilitate mutual communication and shared understanding in the joint pursuit of ambitious growth targets. To the contrary, matching non-predictive and purely control-oriented entrepreneurs with BAs featuring an identical decision-making style locks the venture into a moderate growth trajectory. This has practical implications for entrepreneurs searching for the adequate funding strategy, and for equity investors in their assessment of entrepreneurs’ cognitive profiles. Plain English Summary Decision-making style in entrepreneurial finance and growth: how matching predictive entrepreneurs with predictive VCs and business angels boosts venture growth. Predictive decision-making boosts strong venture growth when shared by entrepreneurs, business angels (BAs), and venture capitalists (VCs) alike. Purely control-oriented entrepreneurs get locked into moderate growth when teaming up with control-oriented BAs, unless they dynamically adapt their decision-making style as a result of their interaction. Matching of decision-making styles appears hence to be crucial to sustain growth. Decision-making styles are not necessarily static, and the various actors may adapt their approach to changed circumstances. Certain BAs may play a prominent role in the process of change. Dynamic matching is a relevant avenue for future research. Our findings have also practical implications for the various actors in the field of entrepreneurial finance. Investors targeting especially strong growth should team up with highly predictive entrepreneurs only.

Keywords: Business angel; Venture capitalist; Growth intention; Cognitive resources.; Decision-making style; Growth path; G24; G32; L25; L26; M13 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11187-021-00528-y

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