Date of Award
Doctor of Business Administration (DBA)
Bisk College of Business
Jignya M. Patel
Abram L.J. Walton
Charles E. Bryant
Richard J. Addante
Venture Capital (VC) funding for entrepreneurs has traditionally been examined independently without considering risk differentials or idiosyncratic information gaps at various funding stages. As a result, these studies carry either a survival bias (only successful ventures), confirmation bias (interpreting information partial to decisions), or an assumption of information homogeneity across the funding stages. Without tangible and performance-related information at the early funding stage (seed), VCs rely on indicators or signals that create unimpeachable logic for investment. The paper explores VCs’ criteria to manage investment risks through an information asymmetry and signaling perspective and leveraging phenomenological research. The study was conducted with 14 India-based VCs investing in early-stages of an entrepreneurial venture. The research shows that early-stage VCs do not rely on one signal or approach but a systematic and linear approach to managing the risks associated with early-stage investments. Without any real data points, the early-stage investment is driven by what the VCs know (markets, third-party validated deals), what they intuit (passion for the entrepreneurial process, vision, and execution abilities), and what they can control (agency constructs and coachability) as their investment thesis. The study opens doors for numerous research on risk mitigation and information asymmetry strategies, especially as it relates to signals for early-stage investments.
Malhotra, Vineet, "Managing Risks at Early-Stage Investment - An Information Asymmetry and Signaling Perspective" (2023). Theses and Dissertations. 1303.