How experience and perceptions shape risky behaviour: Evidence from the venture capital industry

Annaleena Parhankangas and Tomas Hellström

Venture Capital, 2007, vol. 9, issue 3, 183-205

Abstract: This study addresses a hitherto underexplored, but potentially very central issue in venture capital research by investigating whether differences in risk perceptions and professional experience of venture capitalists prompt differing investment and risk reduction strategies. The study is based on a survey sent to 142 Swedish and Finnish venture capitalists, with a response rate of 63% (90 responses). Our results show that experience drives the perception of risk and the riskiness of the preferred investment portfolio. To be more specific, we find that in the presence of more pronounced perceptions of market and agency risk, partly stemming from their experience, investors seem to be willing to take more risks. This result may be attributed to overconfidence, illusion of control, or the speculative dimension of risk present in entrepreneurial settings. The portfolio risk is dynamically attenuated by the execution of various risk reduction strategies, such as syndication, information seeking, monitoring and the use of preferred stock. These findings lead us to believe not only that venture capitalists are proactive and responsible risk takers, who shield themselves from potential losses through a careful application of risk reduction strategies, but also that their responses to risk may resemble more the behaviour of typical entrepreneurs than that of typical managers.

Date: 2007
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/13691060701324478 (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:9:y:2007:i:3:p:183-205

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

DOI: 10.1080/13691060701324478

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 ().