The role of affective biasing in commercializing new ideas

Abstract

This paper explores the role of ‘affective attachment’ (powerful, emotional attachment) to one's ideas as a source of bias in market entry decisions concerning, but not limited to, technological initiatives. We investigated the effects of such attachment on: evaluations of new ideas and the idea developers’ desire to retain control over the commercialization of these ideas. Our results indicate that entrepreneurs who are experiencing strong affective attachment to their ideas are more willing to accept poorer financial terms, than might be otherwise available to them, in order to maintain control over the ideas. Overall, our findings indicate that affective attachment can interfere with a person's objective evaluation of their ideas, and hence with their potential for future commercialization.

Cet article examine le rôle de « l’attachement affectif » (attachement puissant, émotionnel) à ses idées en tant que source de biais dans les décisions d’entrée sur le marché concernant, mais sans s’y limiter, les initiatives technologiques. Nous avons étudié les effets d’un tel attachement sur : les évaluations des idées nouvelles et le désir des développeurs d’idées de conserver la maîtrise de la commercialisation de ces idées. Nos résultats indiquent que, pour pouvoir conserver la maîtrise des idées, les entrepreneurs qui sont très attachés à leurs idées sont davantage disposés à accepter de moins bonnes conditions financières que celles dont ils pourraient bénéficier sans un tel attachement. Globalement, nos constatations indiquent que l’attachement affectif peut interférer avec l’évaluation objective de ses idées par une personne, et par conséquent avec leurs possibilités de commercialisation future.

Keywords:

• attachment
• affective bias
• venture financing

Mots clés:

• attachement
• biais affectif
• financement en capital risque

Notes

1. In fact, a project from the year before, Casinobot, (a security system for casinos) was so well received that it was featured nationally on Daily Planet TV show and adopted by a casino in Las Vegas.

2. Respondents were asked to rank their knowledge of commercialization issues with the following question: ‘on a scale of 1 to 5, rank your knowledge of commercialization and attendant issues prior to this study’. About 63% reported knowing ‘little’ (2) and ‘very little’ (1) with 20% being neutral (3) and 16% knowing ‘something’ (4) and 1% knowing ‘everything’ (5). For those who indicated knowing about commercialization, in the two latter cases, their knowledge was gained from the following sources: 26% read about it, 20% attended a talk or seminar where commercialization was discussed, 11% took a course in which commercialization was incorporated, 24% did personal research, 20% learned about the topic on the job. None of the respondents had a personal commercialization experience.

3. Note that even without the pre-money valuation calculations, the percent structure of stakes and offers, provided respondents with enough information to realize the optimal offers provided by the VC. Since the VC offered $4 m and the Angel, $2.5, simple calculations quickly reveal the optimal offer in each paired deal. For example, adopting the developer's percent stakes for illustration, the highest amount a developer obtained in equity within the VC offers was $2 m (50% of the $4 m offer, when the VC demanded 50% equity), while the lowest was $1.8 m (45% of the $4 m offer, when the VC demanded 55% equity). Conversely, the highest amount in the Angel offers for the developer was $1.38 m (55% of the $2.5 m Angel offer, when the Angel demands 45% equity), while the lowest is $1.25 m (50% of the $2.5 m Angel offer). Clearly, simple proportions show that the VC offers are optimal in all deal rounds. Hence, respondents are not expected to necessarily compute the pre-money valuation calculations to make the expected (normative) choices.