Embedded fitness landscapes?part 2: Cognitive representation by venture capitalists

Douglas D. Moesel and James O. Fiet

Venture Capital, 2001, vol. 3, issue 3, 187-213

Abstract: Sensemaking frameworks explain changes in multidimensional fitness landscapes. Such cognitive maps represent the simplified visualization process used by early stage venture capitalists (VCs) to understand venture risk. VC risk assessments of high-growth potential ventures are highly subjective because of their ambiguous investment environments. For VCs, management of highly subjective risk entails both cognitive representation and experiential learning. The second article of this three-part series analyses how VCs use cognitive representation. A VC's cognitive representation process is modelled using Weick's belief-driven sensemaking processes of arguing and expecting. The authors suggest the use of self-fulfilling prophecy as a way to understand how a VC focuses on a few dimensions of a fitness landscape (selective noticing) and selects network contacts for updates based on those dimensions (selective shaping). Discrepant cues cause confusion concerning the accuracy of the dimensions relied on in a fitness map, especially when provided by well-established network contacts. The interruption of prophecy fulfillment by one or more discrepant clues initiates one or both forms of belief-driven sensemaking process. These processes cycle until a VC reaches a stable interpretation with some intra-firm coherence. Promising research questions on the VC's cognitive representation process are identified.

Date: 2001
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DOI: 10.1080/13691060110060637

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