Séminaire KTO-GREDEG-OFCE - Gary DUSHNITSKY (London Business School)

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Entrepreneurial Optimism and Venture Capital Valuations

28-02-2020 - 12h15 à 13h45 - SKEMA Business School - K Center, 1st floor

Gary DUSHNITSKY (London Business School)

Title: Entrepreneurial Optimism and Venture Capital Valuations”

Abstract

Optimism is a well-documented entrepreneurial characteristic. To date, the literature has mostly focused on the (erroneous) actions of the individual optimistic entrepreneur, yet, less attention was given to the effect this characteristic has on the strategic interaction between entrepreneurial ventures and prospective resources providers. The following question motivates our study: How does optimism affect entrepreneur-investor interaction and what are the implications to ventures’ valuations? We conjecture that contingent-pay contracts (e.g., preferred shares) can deter charlatans but may be less effective in screening optimists, thus resulting in an optimism discount. We further conjecture that IPR regime may minimize the discount: an entrepreneur can attract higher valuation by disclosing her invention, but she would do so only when disclosure is not vulnerable to imitation (e.g., if patents are effective). Analyses of a sample of international venture capital investments between 1990 and 2006, using a novel measure of cross-country optimism levels, support our hypotheses. The results advance our understanding of entrepreneurial resource assembly, and particularly the nature of the interactions between entrepreneurs and resources providers.


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