Is beauty in the eye of the beholder? An empirical study of how entrepreneurs, managers, and investors evaluate business opportunities at the earliest stages

ABSTRACT

Existing research suggests that individuals occupying different professional roles, have different human capital and hence vary in their “opportunity templates”, and may thus deviate in their evaluations of a given business opportunity. This paper advances our understanding on how evaluators vary in their assessments of business opportunities in two very early phases by conducting a comparative analysis of three stakeholder groups that are crucial to new ventures: entrepreneurs, managers, and investors. We analyze a unique dataset of 693 business ideas and 379 business-plan proposals submitted to a nationwide startup competition held in Switzerland. Our linguistic analysis reveals heterogeneity in opportunity evaluations between groups with different types of professional roles. However, this divergence in individuals’ evaluations does not emerge at the earlier business-idea phase, but only at the later business-plan stage. The study provides empirical evidence that individuals’ professional role makes them more sensitive to certain aspects of a given business-plan proposal.

KEYWORDS:

• Startup opportunity evaluation
• professional role
• heterogeneity
• business plan competition
• opportunity template
• linguistic research

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Even in these early stages, vetting the opportunity may be a challenging task due to limitations in the available data. On this, Gruber, Kim, and Brinckmann (2015, p. 222) point out that there might be some “early-stage settings in which the quantity and quality of information pertaining to a particular opportunity attribute may (still) be too low for the agent to accomplish judgmental inferences based on his/her opportunity template”.

2. For the examination period 2004–2014, besides the 1072 proposals in English, another 641 proposals were submitted in German, 118 in French, and six in Italian, respectively.

3. As mentioned above, the organizers of the competition do not distinguish between entrepreneurs and managers, and these two types of jurors use the same evaluation questionnaire.

4. In this context, it has to be admitted that pooling all evaluations from 2004 to 2014 for computing the ANOVA ignores the general variations in the mean evaluation scores between the different editions of the competition.

5. On the individual-question level, for the documents in English language the dataset contains a total number of 9942 ratings by entrepreneurs, 8937 ratings by managers, and another 5063 ratings by investors (business idea and business plan together).