Most new business ventures fail to attract financing in Canada. Business angels (BAs) are private... more Most new business ventures fail to attract financing in Canada. Business angels (BAs) are private investors who provide funding to new businesses, especially in their early stages. Prior research suggests that angel investors use a compensatory decision model. This is where investors consider many factors with varied importance to look at the potential of a new project. This research, however, explains how BAs actually use a shortcut method known as eliminationby-aspects (EBA) to save time and reduce the size of available investment opportunities. If one or more requirement is not met, the venture is immediately rejected in the first stage of assessment. Beyond the first stage, BAs use different methods to make investment decisions.
International Journal of Entrepreneurship and Innovation Management, 2011
Universities are increasingly under pressure to commercialise their technological innovation and ... more Universities are increasingly under pressure to commercialise their technological innovation and generate revenues to justify ongoing public investment to support that innovation. Most universities respond to this pressure by focusing on licensing patentable technologies. However, as most licensees operate far from the universities, the local economic impact is reduced. Due to this factor, regional economic development agencies, when looking to extract commercial value from university research, see limited benefit from the licensing of technology patents generated by universities. Instead, they concentrate on promoting new business ventures as a mechanism for regional wealth creation. We propose an expanded model of knowledge transfer from university research that underscores the importance of creating new ventures and demonstrates how university-based incubators can catalyse knowledge extraction and, as a result, align the goals of regional economic development agencies and universities.
We investigate how an entrepreneur's behaviors during an initial interaction with a business ... more We investigate how an entrepreneur's behaviors during an initial interaction with a business angel can build, damage, or violate trust, and how the investor's level of trust (prompted by the entrepreneur's behavior) can affect his/her decision to make an investment offer. Our empirical analysis shows that entrepreneurs who receive offers from business angels exhibit a larger number of trust–building behaviors during the initial interaction and a smaller number of unintentional trust–damaging behaviors than those who do not receive an offer, and display few deliberate trust–violating behaviors. We further observe that the investor's deployment of a control mechanism is a prerequisite for receiving an investment offer for all entrepreneurs who damage or violate trust.
This article investigates the role of entrepreneurs-in-residence (EIRs) in closing the equity gap... more This article investigates the role of entrepreneurs-in-residence (EIRs) in closing the equity gap born by a lack of venture capital investment in early-stage businesses. We conducted interviews with ten Israeli-based venture capitalists and four EIRs to identify the mechanisms and actions used by EIRs when operating in venture-capital firms, and subsequently in funded ventures, that lead to a greater proportion of funds targeted to seed investments. The findings of our exploratory study suggest that EIRs facilitate investment decisions by acting as catalysts in the development of the relationship between the venture capitalist and the fund-seeking entrepreneur. EIRs can thus prevent some of the problems that preclude venture success through the nurturing of trusted relationships with both fund-seeking entrepreneurs and venture capitalists. Furthermore, ex-ante, during and ex-post investment, through building these trusted relationships, EIRs act as transaction-cost reducers, thus increasing expected return on investments from early-stage ventures. In an attempt to help reduce the equity gap by developing a better understanding of this key phenomenon, these findings provide guidance to rising entrepreneurs as they develop their early-stage businesses, to venture capitalists as they look for investment opportunities, and to governments eager to increase the rate of seed funding.
By analyzing observed interactions between entrepreneurs and business angels on the Canadian real... more By analyzing observed interactions between entrepreneurs and business angels on the Canadian reality TV show Dragons’ Den, we find that business angels use a non-compensatory decision-making process when evaluating anticipated risk and return. This is consistent with our hypotheses that business angels use decision heuristics (shortcuts) to conserve cognitive effort when deciding whether or not to invest in business opportunities proposed by entrepreneurs. Our results further our understanding of how and when behavioral decision theory can inform real-life business angel investment decision processes. Additionally, the results offer practical implications for entrepreneurs interested in pitching proposals to business angels.
Using 150 interactions between entrepreneurs and potential investors, we study early stage busine... more Using 150 interactions between entrepreneurs and potential investors, we study early stage business angel decision making. We show that contrary to the majority of past research that suggests they should, angel investors do not use a fully compensatory decision model wherein they weight and score a large number of attributes. Rather, they use a shortcut decision making heuristic known as elimination-by-aspects to reduce the available investment opportunities to a more manageable size. If an opportunity is diagnosed with a fatal flaw, it is rejected in the first stage of the decision making process, but all opportunities with no fatal flaws do progress beyond that stage.
Most new business ventures fail to attract financing in Canada. Business angels (BAs) are private... more Most new business ventures fail to attract financing in Canada. Business angels (BAs) are private investors who provide funding to new businesses, especially in their early stages. Prior research suggests that angel investors use a compensatory decision model. This is where investors consider many factors with varied importance to look at the potential of a new project. This research, however, explains how BAs actually use a shortcut method known as eliminationby-aspects (EBA) to save time and reduce the size of available investment opportunities. If one or more requirement is not met, the venture is immediately rejected in the first stage of assessment. Beyond the first stage, BAs use different methods to make investment decisions.
International Journal of Entrepreneurship and Innovation Management, 2011
Universities are increasingly under pressure to commercialise their technological innovation and ... more Universities are increasingly under pressure to commercialise their technological innovation and generate revenues to justify ongoing public investment to support that innovation. Most universities respond to this pressure by focusing on licensing patentable technologies. However, as most licensees operate far from the universities, the local economic impact is reduced. Due to this factor, regional economic development agencies, when looking to extract commercial value from university research, see limited benefit from the licensing of technology patents generated by universities. Instead, they concentrate on promoting new business ventures as a mechanism for regional wealth creation. We propose an expanded model of knowledge transfer from university research that underscores the importance of creating new ventures and demonstrates how university-based incubators can catalyse knowledge extraction and, as a result, align the goals of regional economic development agencies and universities.
We investigate how an entrepreneur's behaviors during an initial interaction with a business ... more We investigate how an entrepreneur's behaviors during an initial interaction with a business angel can build, damage, or violate trust, and how the investor's level of trust (prompted by the entrepreneur's behavior) can affect his/her decision to make an investment offer. Our empirical analysis shows that entrepreneurs who receive offers from business angels exhibit a larger number of trust–building behaviors during the initial interaction and a smaller number of unintentional trust–damaging behaviors than those who do not receive an offer, and display few deliberate trust–violating behaviors. We further observe that the investor's deployment of a control mechanism is a prerequisite for receiving an investment offer for all entrepreneurs who damage or violate trust.
This article investigates the role of entrepreneurs-in-residence (EIRs) in closing the equity gap... more This article investigates the role of entrepreneurs-in-residence (EIRs) in closing the equity gap born by a lack of venture capital investment in early-stage businesses. We conducted interviews with ten Israeli-based venture capitalists and four EIRs to identify the mechanisms and actions used by EIRs when operating in venture-capital firms, and subsequently in funded ventures, that lead to a greater proportion of funds targeted to seed investments. The findings of our exploratory study suggest that EIRs facilitate investment decisions by acting as catalysts in the development of the relationship between the venture capitalist and the fund-seeking entrepreneur. EIRs can thus prevent some of the problems that preclude venture success through the nurturing of trusted relationships with both fund-seeking entrepreneurs and venture capitalists. Furthermore, ex-ante, during and ex-post investment, through building these trusted relationships, EIRs act as transaction-cost reducers, thus increasing expected return on investments from early-stage ventures. In an attempt to help reduce the equity gap by developing a better understanding of this key phenomenon, these findings provide guidance to rising entrepreneurs as they develop their early-stage businesses, to venture capitalists as they look for investment opportunities, and to governments eager to increase the rate of seed funding.
By analyzing observed interactions between entrepreneurs and business angels on the Canadian real... more By analyzing observed interactions between entrepreneurs and business angels on the Canadian reality TV show Dragons’ Den, we find that business angels use a non-compensatory decision-making process when evaluating anticipated risk and return. This is consistent with our hypotheses that business angels use decision heuristics (shortcuts) to conserve cognitive effort when deciding whether or not to invest in business opportunities proposed by entrepreneurs. Our results further our understanding of how and when behavioral decision theory can inform real-life business angel investment decision processes. Additionally, the results offer practical implications for entrepreneurs interested in pitching proposals to business angels.
Using 150 interactions between entrepreneurs and potential investors, we study early stage busine... more Using 150 interactions between entrepreneurs and potential investors, we study early stage business angel decision making. We show that contrary to the majority of past research that suggests they should, angel investors do not use a fully compensatory decision model wherein they weight and score a large number of attributes. Rather, they use a shortcut decision making heuristic known as elimination-by-aspects to reduce the available investment opportunities to a more manageable size. If an opportunity is diagnosed with a fatal flaw, it is rejected in the first stage of the decision making process, but all opportunities with no fatal flaws do progress beyond that stage.
Uploads
Papers by Andrew Maxwell