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International Small Business Journal
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Do Venture Capitalists' Implicit Theories on New Business Success/Failure have Empirical Validity?

Hernan Riquelme

Universidad Cat6lica Boliviana

John Watson

The University of Western Australia

In assessing new business proposals, venture capitalists rely on their own implicit theories (beliefs) about the attributes that a potentially successful business should possess. From these 'commonsense theories' venture capitalists develop decision rules (selection criteria) to assess the potential viability (and likely profitability) of new business proposals. Although identifying these selection criteria is important, it is also important to determine whether the criteria actually work; that is, are they related to future business success? Despite a call for such confirmatory research, there have only been a handful of studies to date that have attempted to validate venture capitalists' selection criteria. This article reviews and analyses previous empirical studies examining the reasons for small and mediumenterprise success and failure, and the results provide support for (validate) the selection criteria developed for a sample of UK venture capitalists.

Key Words: decision rules • failure • success • venture capitalists

International Small Business Journal, Vol. 20, No. 4, 395-420 (2002)
DOI: 10.1177/0266242602204002
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