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The Journal of Private Equity

The Journal of Private Equity

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Primary Article

Caprice Versus Standardization in Venture Capital Decision Making

Brent Mainprize, Kevin Hindle, Brock Smith and Ron Mitchell
The Journal of Private Equity Winter 2003, 7 (1) 15-25; DOI: https://doi.org/10.3905/jpe.2003.320060
Brent Mainprize
The core faculty in entrepreneurship at Royal Roads University, Canada.
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  • For correspondence: brent.mainprize@royalroads.ca
Kevin Hindle
A professor of entrepreneurship research at the Australian Graduate School of Entrepreneurship, Swinburne University, Melbourne, Australia.
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Brock Smith
An associate professor at the University of Victoria, Canada.
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Ron Mitchell
Professor and Winspear Chair in Public Policy and Business at the University of Victoria, Canada.
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Abstract

This study examined the criteria used by venture capitalists to evaluate business plans in order to make investment decisions. A literature survey revealed two competing theories: “espoused criteria” where evaluation decisions are based on what venture capitalists say are the decisive factors, versus the use of“known attributes” that successful ventures actually possess. Brunswik's Lens Model from Social Judgment Theory guided an empirical investigation of several different evaluation methods based on information contained in 129 business plans submitted for venture capital over a three-year period. Data evaluation culminated in the comparison of the percentage of correct decisions (“hit rate”) for each method. We found that decisions based on the known attributes of successful ventures have significantly better hit rates than decisions made using espoused criteria. Discussion centered on the goal of achieving consistency in the conduct of venture analysis. Process standardization can aid in the achievement of consistency. Future research will both deepen and broaden insights.

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The Journal of Private Equity
Vol. 7, Issue 1
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Caprice Versus Standardization in Venture Capital Decision Making
Brent Mainprize, Kevin Hindle, Brock Smith, Ron Mitchell
The Journal of Private Equity Nov 2003, 7 (1) 15-25; DOI: 10.3905/jpe.2003.320060

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Caprice Versus Standardization in Venture Capital Decision Making
Brent Mainprize, Kevin Hindle, Brock Smith, Ron Mitchell
The Journal of Private Equity Nov 2003, 7 (1) 15-25; DOI: 10.3905/jpe.2003.320060
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