Venture Capitalist Behaviours: Frameworks for Future Research

Dave Valliere and Rein Peterson

Venture Capital, 2005, vol. 7, issue 2, 167-183

Abstract: Much of traditional investment theory is based on risk taking with known parameters. This article looks at a case where the parameters of the risk function are unknown and investors therefore face uncertainty in risk-taking. We provide a theoretical background to develop alternative cognitive and economic models of investor behaviour. Using a previously developed descriptive model of investor behaviour grounded in interviews with 57 venture capitalists during the internet bubble, we apply theoretical constructs from prospect theory, signalling theory, regret theory, and career concerns and reputation theory to provide deeper insights into different investor behaviours observed empirically. The different perspectives on investor utility offered by the theories developed in this paper serve to explain the unique model components that emerged during the bubble period. No single model or theory was sufficient by itself. Relationships are also suggested between the governance existing with specific investor classes, and the degree to which those investors exhibit the cognitions we model. We conclude that the bubble was a degenerate case that resulted from the failure of VCs with limited experience to follow accepted VC investment practices and governance, and from predictable human nature and weaknesses. This article concludes with theory-based directions for future research.

Date: 2005
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/13691060500088076 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:veecee:v:7:y:2005:i:2:p:167-183

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TVEC20

DOI: 10.1080/13691060500088076

Access Statistics for this article

Venture Capital is currently edited by Colin Mason and Richard T. Harrison

More articles in Venture Capital from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().