John E. Young

Some hypotheses about risk in venture capital investing

Abstract Venture capital investing differs in important respects from investment decisions involving the securities of Fortune 500 companies, or decisions to purchase established companies, which are generally made in accord with widely recognized financial models. Investing in new ventures involves a high level of uncertainty as well as a high risk of failure. Venture capital investing is characterized by high variability in the outcomes of new ventures and in the performance of venture capital portfolios. Venture capital investing decisions are complicated by a general lack of quantifiable financial and market data for early-stage ventures, and investment decisions remain hostage to unanticipated competitors, market shifts, and financial cycles. Some observers have suggested that venture capital investment decisions are primarily subjective assessments. While the question of risk in venture capital investing has been addressed on an ad hoc basis in several empirical studies, there has been little effort to develop a theoretical framework of risk perceptions and risk-reduction strategies. Despite differences in investor experience, investment preferences, and tolerance for risk, venture capital managers share many common perceptions of the risks involved in investing in new ventures and the distribution of those risks over the venture-capital-funded phase of development. Venture capital managers also utilize many common behaviors and strategies in adapting to these risks. These perceptions and reactions to risk in investing, and strategies for controlling risk can, in theory, be used to construct a behavioral framework that can predict how venture capital managers will behave in choosing between various investment opportunities in order to minimize risk and to maximize potential returns. In an attempt to begin to identify various elements of such a behavioral framework of venture capital reactions to risk, the authors have drawn upon psychological risk theory of decision-making under uncertainty, including classic expected utility theory, later modifications to that theory by Kahneman and Tversky (1979). and Coombs and Huangs (1970) “portfolio approach” to risk, that are applicable to venture capital investing. These expected behaviors to risk have been used in conjunction with empirical studies of venture capital investment and portfolio outcomes, distributions of investments within portfolios, and venture capitalist perceptions of risk, to propose nine hypotheses about how venture capital managers behave in making investment decisions. These hypotheses include differences in variation and magnitude of returns for early-stage versus later-stage ventures, explanations of how risk distributions change over the stagewise development of new ventures, differences in the behavior of “aggressive” versus “conservative” investors in screening investment prospects, and strategies utilizing a lower “ideal level of risk” to reduce the chances of achieving negative or sub-normal final portfolio returns.

Entrepreneurship's requisite areas of development: A survey of top executives in successful entrepreneurial firms

Abstract Precisely what does one “need to know” in order to become a successful entrepreneur? When should we first begin teaching this knowledge? How should this knowledge be conveyed? These questions and others were answered by 100 leading entrepreneurs and chief executive officers in Americas fastest-growing entrepreneurial firms. Questions such as those listed above are rapidly taking on increased importance not only for enhancing U.S. national competitiveness, but also around the world. For instance, eastern block countries wish to understand these questions as they attempt to establish free market economies and foster the entrepreneurial spirit, while developing countries need answers as they turn more toward entrepreneurship as a viable vehicle for promoting economic development and improved living standards for their citizens. This research develops a theoretical framework suggesting four primary areas in which successful entrepreneurs must be developed. Specifically, these areas are content, skills and behavior, mentality, and personality. The first three areas, content, skills and behavior, and mentality are referred to as areas of creative knowledge. This is because new knowledge is brought into existence during the creation and subsequent management of growing business entities. The study analyzes the responses of 100 chief executives from Inc. magazines list of the nations most successful publicly held entrepreneurial firms for the years 1979–1989. A list of requisite areas of knowledge in terms of content, skills, and mentality is developed. Personality characteristics necessary for entrepreneurial achievement are also delineated. Examples of essential domains of knowledge include finance/cash management, engineering, accounting, etc. in the area of content. Leadership, communication, and human relations are some of the skills and behaviors deemed essential. Creativity, opportunistic thinking, vision, and positive thinking are examples of required mentality attributes. Self-motivation, propensity for risk-taking, and deep-seated ethical values are required in terms of personality characteristics. After determining the areas of knowledge required for successful entrepreneurship, the study goes further to determine (1) if the executives believe the knowledge can in fact be taught, (2) the priority level of importance of the knowledge, and (3) suggested methods for conveying or teaching such knowledge. The results of the study represent a first attempt in the U.S. for systematically determining, from successful entrepreneurs, the knowledge believed important for engendering successful entrepreneurship. The results will help the designers of entrepreneurship education curricula in deciding which areas might be included in such curricula and which should receive greater emphasis. Finally, while the results could very well be different in other cultures and countries, they could represent a starting point for further analysis in other parts of the world as governments, academicians, and business communities attempt to foster the entrepreneurial spirit as a means of economic development and improvement of local standards of living.

ENTREPRENEURIAL LEARNING: A CONCEPTUAL FRAMEWORK

This paper investigates and offers tentative explanations of the processes which enable practicing entrepreneurs to learn, as they manage their growing businesses. Specifically, it provides a conceptual framework for acquiring an understanding of the learning processes which entrepreneurs use to grow their businesses. The research suggests that entrepreneurs learn processively, and it also identifies their motives for learning. This paper focuses on the learning activities entrepreneurs choose and the cognitive processes which characterize the acquisition, retention, and use of entrepreneurial knowledge. Principles from several studies within the disciplines of the cognitive sciences are used to help explain entrepreneurial learning processes. Problem-solving categories for learning are delineated; effective entrepreneurial learning is defined; and, ways for facilitating the entrepreneurs learning processes are suggested.

Bank lending and initial public offerings

Abstract In this paper we test the hypothesis that banking relations are a signal about firm value. We argue that bank processing of asymmetric information and external monitoring of corporate activities reduce the ex ante uncertainty of investors about firm value. We demonstrate that the existence of bank debt and/or lines of credit lowers the expected initial return associated with initial public offerings. The empirical results are robust with respect to the inclusion of variables which reflect other mechanisms that can ameliorate ex ante uncertainty. Our work adds to the body of evidence that supports the hypothesis that intermediaries provide valuable asset services to corporate borrowers.

What Makes Entrepreneurs Learn and How Do They Do It

What motivates entrepreneurs to learn and grow in their business is a question the answer to which has been attempted in this article. Similarly, answers to some questions like the existence of specific processes which help in generating motives for learning, the mechanisms adopted by entrepreneurs to acquire knowledge for growing their businesses, and so on, have been attempted. We all know that solving novel problems is one way which helps entrepreneurs acquire requisite knowledge. These problems are seen to proliferate more in rapidly changing environments and as businesses grow. This article is based on an empirical research which makes an attempt to uncover the processes that generate the necessary motivation to learn. It categorises learning motives and also identifies the basic external and internal learning activities which are practised by entrepreneurs. The benefits that can accrue to those who become familiar with and utilise these findings are also discussed at length. The article finally suggests an agenda for future research on entrepreneurial learning.

THE SAGE ENTREPRENEUR: A REVIEW OF TRADITIONAL CONFUCIAN PRACTICES APPLIED TO CONTEMPORARY ENTREPRENEURSHIP

Currently, the West is experiencing a surge in the popularity of Eastern philosophies and wisdom and their application to everyday life. This paper applies the philosophies from ancient China as expressed by Confucius and subsequent scholars in the Confucian tradition to contemporary entrepreneurship, Specifically, we explain the notion of the Confucian sage and the attempt to attain sagehood in general terms. We also elaborate on methodologies used by adherents to the Confucian tradition. Next, we introduce the concept of the contemporary sage entrepreneur and suggest traditional Confucian practices for facilitating the transformation of contemporary entrepreneurs into sage entrepreneurs. In addition, we focus on benefits of the entrepreneurs transition to sagehood. Propositions describing the benefits of Confucian practices and eventual sagehood are presented throughout the paper.

Entrepreneurial Learning and Deepak Chopra's Seven Spiritual Laws of Success

This research examines the concept of entrepreneurial learning and relates it to Deepak Chopras seven spiritual laws of success. The article first examines generic processes in motivating entrepreneurs to engage in self-directed learning projects on behalf of their businesses. Then it examines three modes of learning as they apply to practising entrepreneurs. Triple-loop learning is proposed as the deepest level of entrepreneurial learning. Triple-loop learners are considered the most likely entrepreneurs to practise the seven spiritual laws of success. Finally, each of the seven laws is related back to the motives that inspire entrepreneurs to learn.

METHODS FOR CONVEYING ENTREPRENEURIAL KNOWLEDGE: PERCEPTIONS OF TOP EXECUTIVES FROM SUCCESSFUL ENTREPRENEURIAL FIRMS

Instruction in entrepreneurship often parallels traditional teaching methods. The effectiveness of these methods, given the unique nature of entrepreneurship, has not been investigated fully. The purpose of this study is to ascertain the pedagogical methods currently successful U.S. entrepreneurs feel would be effective for conveying information in university-level entrepreneurship programs. Four areas of development were found to be important in cultivating successful entrepreneurs, including areas of content, skills, mentality, and personality. Pedagogical methods cited by the respondents for imparting knowledge in each of these areas were divided into 47 different categories. Several traditional teaching methodologies were supported in terms of their perceived effectiveness for conveying specific areas of knowledge. The respondents also suggested new active learning approaches such as co-operative education/internships and student-run businesses, which should be given serious consideration in particular circumstances, depending upon instructional goals or objectives.

Integral Sensemaking for Executives: The Evolution of Spiritually-based Integral Consciousness

This article presents philosophy and theory supporting an integral approach to executive sensemaking and problem solving, which is beginning to emerge as a result of the continuing evolution of consciousness. Integral sensemaking is contrasted with the mental-rational approach that has characterized management practice in the industrial and post-industrial eras. The two approaches to sensemaking are applied to the organizational context in five key areas: leadership, strategy formulation, organizational culture, ethical culture, and human resource management. Implications of the evolution of consciousness on management and spirituality and on organizations are discussed.

University-based Entrepreneurship Programmes as Vehicles for State-level Economic Development: A Case Study

This research examines the processes and resultant outcomes of a student- initiated and administered state-level external marketing project. The paper describes the contribution of entrepreneurship to state and regional development and discusses how university-based entrepreneurship programmes can contribute to such development. Specific recommenda tions for policy-makers wishing to replicate the initiative elsewhere are set forth. The setting of this research is a state in the United States, but the processes described here may have wider applicability.