How does VC feedback affect start-ups?

Harveen Chugh, Nicos Nicolaou and Simon Barnes

Venture Capital, 2011, vol. 13, issue 3, 243-265

Abstract: This study examines how venture capital (VC) feedback affects start-ups through a three-year qualitative study of university spin-offs. We present a taxonomy of VC feedback into (i) inconsistent, (ii) consistent and workable, and (iii) consistent and unworkable feedback. We find that when start-ups fail to raise VC, inconsistent VC feedback leads to a greater escalation of commitment than consistent and workable VC feedback. We show that single-loop learning mediates the relationship between VC feedback and escalation of commitment. We find that consistent and unworkable VC feedback increases the likelihood of a firm's exit, and that inhibited double-loop learning mediates the relationship between VC feedback and an exit.

Date: 2011
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DOI: 10.1080/13691066.2011.600285

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