Münchner betriebswirtschaftliche Beiträge Munich Business Research 2003-02 What you are is what you like – similarity biases in venture capitalists’ evaluations of start-up teams

The evaluation process of venture capitalists (VCs) has received much attention from researchers, as it gives insights into the criteria that distinguish successful from unsuccessful new firms. The underlying premise of these studies is that VC evaluations are objective, i.e. they predict actual startup success without systematic distortions. Only recently, research has pointed out that VC evaluations are likely to be biased. In this paper, we analyze an important bias previously not discussed in the entrepreneurship literature, namely, systematic distortions of VC evaluations that derive from the similarity between VCs and start-up team. The existence of similarity biases has important implications for researchers and practitioners (VCs and start-up teams).