Isin Guler

Throwing Good Money after Bad? Political and Institutional Influences on Sequential Decision Making in the Venture Capital Industry:

This study focuses on the political and institutional influences that lead organizational decision makers to avoid terminating unsuccessful investments, even when there is competition and they have the experience and incentives to maximize profits. I examine multilevel influences on sequential investment decisions in the U.S. venture capital industry through a qualitative study of the investment process and a quantitative examination of venture capital investments between 1989 and 2004. Results show that venture capital firms become less likely to terminate investments as they participate in more rounds of financing, despite evidence that expected returns are declining over rounds. Intraorganizational politics, as well as coercive and normative pressures from co-investors and limited partners, may influence the decisions to continue or terminate investments, regardless of the expected returns. The findings suggest that organizational safeguards designed to mitigate individual biases may give rise to political and institutional influences, which may in turn undermine the effectiveness of the decision process.

An Empirical Examination of Management of Real Options in the U.S. Venture Capital Industry

This study empirically examines how firms manage real options over time in the context of the U.S. venture capital industry. It tracks the venture-capital funding histories of U.S. portfolio companies founded during 1989–1993, and their outcomes, until 2004. An examination of sequential investments suggests asymmetries in the management of successful and unsuccessful companies. Signals of a companys progress, such as the number of its patents, are significant predictors of VC investment practices in the case of successful companies, but not in the case of unsuccessful companies. In contrast, VC firm characteristics, such as experience in the companys industry, IPO experience, and geographic proximity, appear to explain variance in investment policies for unsuccessful companies, but not successful ones. This suggests that signals of progress are relatively easier to interpret when real options perform well over time, and investors can perhaps apply them equally effectively. In contrast, signals of failure are more ambiguous and complex; and firm-level differences are more pronounced in the management of unsuccessful options.

Do Investors Manage US Ventures Less Intensively than Ventures in Other Regions of the World

We examine differences in the risk-mitigation practices of venture-capital investors in managing both US and non-US ventures. The analysis focuses on actions taken by investors to manage the risks in venture firms. In particular, we evaluate whether investors disburse an average dollar to non-US ventures through more rounds, a shorter elapsed time between rounds, and broader syndication than to US ventures. After controlling for exogenous characteristics such as the industry affiliations of the ventures, the evidence is consistent with the finding that US ventures are not less risky than ventures from other parts of the world. Investors do not disburse funds to non-US ventures in more rounds, require less elapsed time between rounds, or syndicate more broadly than for US ventures. This may occur because investors select relatively higher quality ventures outside the US than in the US. The conclusions emphasize that the venture community has not developed fully in its understanding of international investing.

THROWING GOOD MONEY AFTER BAD? SEQUENTIAL DECISION MAKING IN THE VENTURE CAPITAL INDUSTRY.

The article examines the effectiveness of organizations in managing sequential investment processes. Many important organizational decisions tend to be sequential in nature. Allocation of capital t...