No abstract

No abstract

The fundamental questions we address are whether firms with a higher initial forecasting ability are able to accurately revise the exit forecasts of their investments; and how co-investment partners and value-adding commitment with their investment influence the main effect. We explore these questions with novel and unique data collected via mixed research methods on venture capital firms' forecasts of 114 portfolio companies. We find that venture capital firms that are better at making initial forecasts are less effective in revising their forecasts. In addition, while the number of co-investment partners positively moderate this relationship, venture capital firms' value-adding commitment moderates it negatively. Our findings contribute to the literature on organizational forecasting as well as interorganizational knowledge transfer and knowledge creation. They also provide novel insights into venture capital literature and practice.

This study investigates what leads managers to allocate constrained cognitive effort toward new versus familiar aspects of a business. Specifically, we explore advice giving by venture capital firms (VCs) to their portfolio companies, distinguishing between business topics on which a VC has advised other ventures in the past and topics new to the VC that may be outside its areas of expertise. We use both demand-side (venture-driven) and supply-side (VC-driven) perspectives to offer a novel theory about the antecedents of cognitive effort underlying advice giving. Empirical tests in a unique data set of French VCs show that both perspectives explain important aspects of advice-giving dynamics for VCs. VCs facing dynamic environments and capacity constraints strongly respond to stimuli from ventures, but VCs also adjust their behavior as they accumulate experience in ways that reflect both expanding confidence in their ability to add value and concerns about overextension of their efforts, depending on the valence of VC experience. Our findings provide important insights to the antecedents of cognitive effort and to research on the VC–venture relationship by exploring the dynamics of how advice-giving relationships evolve over time as VCs gain experience.

No abstract