Content area
Full Text
Differing Perceptions of New Venture Failure: A Matched Exploratory Study of Venture Capitalists and Entrepreneurs*
Using an attribution theory viewpoint, this exploratory study examines new venture failure from the perspectives of both the entrepreneur and the venture capitalist (VC). Contrary to what should be expected, given attribution theory, entrepreneurs acknowledge that internal causes contributed to their ventrres failure. On the other hand, VCs attributed the failure to external causes, differing
from the entrepreneur's perception of the event. Both the entrepreneur and VC were more likely to attribute the failure of other ventures to internal factors (the fundamental attribution error). This study suggests that entrepreneurs and VC's view failure differently. These differences might cause misapplication of scarce entrepreneurial resources.
"The key factor [that caused our failure] was that our external market had changed after we introduced the product."
"Failure to provide the customer what he [or she] wanted cost us some jobs. " "The bad news is that we missed a lot of [problems] that had we been in the business before, we would have caught. "
"We had problems moving fast enough in an extraordinarily fast moving industry, so that we couldn't capitalize on the opportunity that we had created. "
The above quotes from entrepreneurs highlight some of the problems that haunt new ventures in their struggle to survive. In fact, Timmons (1994) notes that over 20 percent of new ventures fail within one year, and 66 percent fail within six years. The large percentage of failures and the perceived drain on national resources has been a point of contention. Robert Reich asserts that "chronic entrepreneurialism" is undermining America's competitive strength because entrepreneurial ventures splinter "American manufacturing power into too many small pieces" (Castro 1988, p. 48). The fact that a large percentage of new ventures fail is indisputable; however, others argue that the learning accrued by the failed entrepreneur may outweigh the costs to society (Shapero 1981; Vesper 1980). Nevertheless, given the societal costs involved, research is needed to examine the characteristics of new venture failure.
Introducing the effects of venture capitalists (VC) on new venture survival is important because of the differences in failure rates of VC and non-VC backed firms. Although the overall rate of new venture failure...