Funding ventures similar to one of us: How status dynamics within heterogeneous groups affect venture evaluation

Xirong (Subrina) Shen, Heeyon Kim and Jizhen Li

Strategic Management Journal, 2022, vol. 43, issue 10, 2135-2155

Abstract: Research Summary We examine how status dynamics in heterogeneous evaluator groups affect the evaluation of a target venture where some evaluators resemble the venture team while some do not. Using data from a funding competition in China, we theorize and empirically show that the emergence of a status hierarchy among evaluator group members based on top‐university affiliation leads non‐top‐university members to favor top‐university venture teams by (a) increasing the visibility and positive value of top‐university affiliation as a quality signal and (b) suppressing challenging questions directed at top‐university teams. By introducing small group status dynamics as an explanation for similarity bias in venture evaluation, we contribute to the literature on resource mobilization in early‐stage entrepreneurship. Managerial Summary Despite the wide use of heterogeneous teams in venture evaluation, similarity bias—a preference for venture teams that resemble the members of an evaluation group—is still prevalent. This study shows that, under certain conditions, heterogeneous evaluation teams might not be a solution for similarity bias. We identify a group‐level source of similarity bias—the emergence of a status hierarchy among evaluators based on affiliation with top universities—which makes top‐university affiliation a more salient and positive quality signal in venture evaluation, particularly for evaluators who are not affiliated with top universities.

Date: 2022
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