Strategic Decision-Making in Venture Capital Funding

Introduction

Kirsch, Goldfarb, and Gera (2009) state that decision-makers are mostly forced to make quick decisions with little information. Also, the article reveals that cognitive decision theory demonstrates that when individuals have little information and are forced to make a critical decision, they only rely on signals and cues to develop their decisions. Therefore, the study aimed to advance the understanding of cues in strategic settings by empirically characterizing and identifying cues related to the successful acquisition of resources in venture capital funding. Limited time often prevents venture investors from learning each proposal in detail, thus making investors make decisions based on little information and often relies on shortcuts to optimize the rate of making a decision. At the same time, the study realizes that entrepreneurs regulate information flow to potential investors, thus affecting the decision making process.

Conclusion of the study

Therefore, Kirsch et al. (2009) pointed out that some organization planning artifacts and solicitations predict funding. However, it was also shown that the information is not indicated in company planning documents. Therefore, the authors concluded that planning information offered to investors is not related to venture capital funding decisions. Also, the study concluded that the information is learned independently.

How Authors Came To the Conclusion

To achieve this conclusion, the study explored well-known events of quick decision making under high uncertainty, especially in venture capital (VC). To achieve its objectives, the study analyzed 722 funding requests submitted to American venture capital organizations and evaluated the impact submission and content of company planning on venture capital funding decisions. Also, the study improved prior studies using huge samples of known representativeness, which are mainly related to VC decisions. The study also applied an empirical strategy that utilizes study outcomes based on conditioned samples to differentiate between the competing views. The study’s inferential strategy relied on the assumption that the entrepreneur only indicates certain information. Moreover, the research also exploited and explored one source of information that they observed for companies that do not submit business planning information and documents.

Weakness of the Paper

The first limitation of the paper is using outdated research papers for literature review. For example, the study uses studies by Almus (1999), Ocasio (1997) and Poindexter (1976), which are old and which might impact the study outcome and reliability. Pautasso (2013) states that due to the progressive acceleration of research, studies used in literature review need to be recent and up to date. The study also reveals that the significant research gaps should not be issues that have been addressed in a series of papers. Pautasso (2013) also demonstrates that technology is advancing very quickly; thus, it is easy for results in outdated studies to be outdated, and this hinders results and increases the chances that researchers will be able to reproduce their results. Studies used in research should be ten years and below. Any other source beyond that is considered outdated (Pautasso, 2013). The Up-To-Date research has great significance in providing updated, evidence-based, new and practical information that is useful in decision-making.

Besides, the study analyzed a vast sample, which could have interfered with the study's outcome. The study analyzed a sample size of 722 funding requests submitted to an American VC organization (Kirsch et al., 2009). On the other hand, Faber and Fonseca (2014) state that huge sample sizes often transform slight differences into statistically significant differences regardless of insignificant. Therefore, the large sample used can interfere with the study outcome and misguide the research, thus significantly impacting the overall reliability. Moreover, most studies also include systematic biases or a vast amount of missing information. Therefore, the immense samples might magnify the biases originating from other research design problems (Faber and Fonseca, 2014).

Study to Strengthen the Study Conclusion

Kirsch et al. (2009) state that decision-makers mostly make fast decisions with limited information. The study outcome revealed that planning documents and information revealed to investors are weakly associated with VC funding decisions.

Therefore, it is critical to explore how to present a business plan to a venture capitalist to strengthen the study. This study will be vital, especially in deciding which information is needed by investors, which information should be kept secret and how to present information.

Studies show that to present information on venture capital to investors; the company managers must research and identify which information is needed by investors. The next step is to introduce and compare the company mission statement. Moreover, some information that can be revealed to investors includes the product (Souitaris & Zerbinati, 2014). A company should give a brief description of the product or services being offered using photographs and illustrations. Also, the company should give its financial information, including the most recent profit, budget and financial projections. The managers should consider using graphs and other statistical presentations. Another information that should be presented to investors is the marketing plan, which should summarise the most critical marketing points and marketing strategy (Souitaris & Zerbinati, 2014). At the same time, the company should reveal a description of its competitors, including product strengths and weaknesses. Lastly, the company should give information on why the VC should invest in the company. This information helps individuals to decide with full information rather than using little information to make a decision.

This study will add information on decision making and strengthen the study by Kirsch et al. (2009) by illustrating when information is limited and when it is appropriate to make a decision. Therefore, other than stating that decision-makers often make a fast decision with limited information, the study will increase understanding of what information would be appropriate to make a VC decision.

Conclusion

Decision-makers often make haste decisions from little information. Therefore, the study by Kirsch et al. (2009) suggests that planning documents and information contained are not linked to venture capital (VC) funding decisions. This decision is achieved by exploring a vast study sample (722) submitted to American venture capital. Also, the study improved prior studies using huge samples of known representativeness, which are mainly related to VC decisions. However, the study is limited due to its use of huge samples, which might interfere with the study's validity. Also, the study uses old literature, which might impact the study outcome. Moreover, the study suggests limited information in making a decision. Therefore, exploring how to present a business plan to a venture capitalist is critical in deciding which information is crucial for investors to make a decision.

References

Faber, J. and Fonseca, L.M., 2014. How sample size influences research outcomes. Dental press journal of orthodontics, 19(4), pp.27-29.

Kirsch, D., Goldfarb, B. and Gera, A., 2009. Form or substance: the role of business plans in venture capital decision making. Strategic Management Journal, 30(5), pp.487-515.

Pautasso, M., 2013. Ten simple rules for writing a literature review. PLoS computational biology, 9(7), p.e1003149.

Souitaris, V. and Zerbinati, S., 2014. How do corporate venture capitalists do deals? An exploration of corporate investment practices. Strategic Entrepreneurship Journal, 8(4), pp.321-348.

Sustainable Innovation

Introduction

Sustainable innovation is innovation boosted and driven by concern for the resources and environment. Therefore, it includes concepts, ideas, and products that achieve economic viability because of environmentally aware practices and designs. The sustainability-driven innovation leverages environmental sustainability to create a superior business outcome. Some of the practices in this strategy include a sustainability mindset, deliberately search for sustainability-based opportunities and high standards for sustainability performance. Organizations that embrace this idea often understand that resources often replenish; thus, use must not exceed the ecosystem's carrying capacity. Therefore, the organization must address consumer demand for greater sustainability and achieve economic performance. The outcome of this strategy is a healthier, cleaner, more stable and fairer world. On the other hand, ignoring this strategy might lead to business challenges and difficulties due to the growth of environmental concerns. Therefore, non-sustainable businesses are often left behind, thus failing to achieve a competitive advantage.

Therefore, I believe that a strategy of sustainability led innovation creates a true competitive advantage.

According to Nkemkiafu et al. (2019), eco-Innovative innovation is critical for social and environmental concerns in business practices. The study also reveals that the design, manufacture and development of products that minimise health and environmental impacts are critical. Today, incorporating eco-innovative practices in product production and development is becoming more critical in recent days. The development of sustainable products is also promoted by the United Nations sustainable development goals, which promotes sustainable production patterns. Therefore, it is evident that companies need to adopt more eco—friendly practices to remain competitive and retain their legitimacy through a social license to operate (Ogrean, 2018; Nkemkiafu et al., 2019). The studies also reveal that companies increasingly need to integrate society's expectations to create a competitive advantage. One of the social expectations is the adoption of sustainability targets as part of mainstream innovation. Ogrean (2018) states that most leading organisations seek to exploit opportunities within this space and often innovate to deal with resource instability and scarcity. For example, Daan Roosegaarde developed the world's first smog vacuum cleaner. The Smog Free Tower sucks in polluted air, cleaning it before releasing it again (Burki, 2019). The tower purifies more than 30,000 m3 in an hour at its peak. The compressed smog particles from the tower and create rings and other ornaments. According to Ali et al. (2019), the project has garnered significant attention and has won multiple awards, and its products are gaining customers worldwide. The company also has a marketing slogan that you donate 1000 m3 of clean air through sharing a smog-free ring. Therefore, it is gaining attention from various environmentalists and clients worldwide, thus proving the competitive advantage associated with sustainability led innovation.

Secondly, creating a sustainability program enables the business to gain a competitive advantage over its competitors and industry peers in terms of market penetration and workers and client branding (Parida & Wincent, 2019). The stud also reveals that sustainable innovations often create a competitive advantage that stems from exploiting sustainable opportunities. When companies become innovative and sustainable, they achieve environmental, economic, and social goals by improving their resource use, thus being competitive. Therefore, companies are increasingly reducing their environmental effects. Tan et al. (2012) state that construction and architecture significantly impact the environment since they contribute to global warming. Constructions often release a vast amount of carbon dioxide and methane, which cause pollution. Besides, the construction's direct use and embodied energy generate over 40 million tons of carbon dioxide, creating global warming (Carson et al., 2014). Therefore, creating various transformational trends puts the organization in a better position to gain a competitive advantage. Thus, actors in the construction industry need to rethink how to develop the next generation of ecosystems and networks to align with the next generation of corporate innovation (Carson et al., 2014). For example, Green Building Initiative (GBI) has created sustainable and resource-efficient buildings, which gave the company a completive advantage (Vierra, 2016). The company offers a certification program for commercial buildings that are environmentally friendly. The company objective is to create standard buildings globally and third-party assessment tools for sustainability requirements. Over the years, the company has been preferred by most constructors and individuals due to its environmental consideration (Vierra, 2016). The company has also been revealed to attract the best and talented employees and donors globally. Therefore, it is proved that companies with sustainable strategies often gain a competitive advantage in the market.

Moreover, companies are proactively forced to adapt their businesses to an increasingly complex and challenging global business environment. According to Ogrean (2018), most companies were accustomed to plans that enforce their race toward competitiveness. However, they ignored significant environmental matters. Over the last decade, scientists and the public have had a critical interest in conserving the environment. However, companies currently face severe challenges and are forced to find new and better methods to stay competitive (Ogrean, 2018). The environmental strategy adopted by companies is increasing organization profits and their performance. Innovation is also crucial for long-term business success. Therefore companies are innovating successfully to promote profits, growth, and access to new markets. Constant innovation in sustainability has been revealed to be critical in achieving competitive advantages (Koentjoro & Gunawan, 2020). Additionally, sustainable innovation often creates win-win situations for a firm and the environment (Hermundsdottir & Aspelund, 2020). For example, a Dutch supermarket chain Albert Heijn created an in-store herb garden in 2017, which combat waste and enable customers to get the freshest possible produce (Finan, 2020). The herbs are grown to maturity off-site and later transported to the stores. The store enables clients to cut as many sprigs of the herbs as possible without buying pre-packaged sprigs. This project is a simple, sustainable innovation with far-reaching positive implications for company profits (Beuermann, 2021). Therefore, sustainable development and innovations often create significant completive advantages for companies.

Conclusion

Sustainable innovation is an innovation boosted by concern for the environment and resources. However, I believe that strategy of sustainability led innovation creates a true competitive advantage. First, an eco-Innovative innovation promotes social and environmental practices, which help an organization gain profits and donors, thus proving the competitive advantage associated with sustainability led innovation. Additionally, sustainability programs promote gain over competitors and industry peers in market penetration and client and employee branding. Furthermore, companies are proactively forced to adapt to environmental matters to attract customers and competitive advantage.

References

Ali, Y., Razi, M., De Felice, F., Sabir, M. and Petrillo, A., 2019. A VIKOR based approach for assessing the social, environmental and economic effects of “smog” on human health. Science of the Total Environment, 650, pp.2897-2905.

Beuermann, D., 2021. I Trade before Aid? The developmental effect of Fair Trade Farming on Producer Communities. Essays in Development Studies II, p.3.

Burki, T.K., 2019. The innovations cleaning our air. The Lancet Respiratory medicine, 7(2), pp.111-112.

Carson, J. F., Whitney, B. S., Mayle, F. E., Iriarte, J., Prümers, H., Soto, J. D., & Watling, J. (2014). Environmental impact of geometric earthwork construction in pre-Columbian Amazonia. Proceedings of the National Academy of Sciences, 111(29), 10497-10502.

Finan, J.A., 2020. Certified B Corps Within the Food Industry and Their Innovative Practices to Improve Environmental and Social Impact.

Hermundsdottir, F. and Aspelund, A., 2020. Sustainability innovations and firm competitiveness: A review. Journal of Cleaner Production, p.124715.

Koentjoro, S. and Gunawan, S., 2020. Managing Knowledge, Dynamic Capabilities, Innovative Performance, and Creating Sustainable Competitive Advantage in Family Companies: A Case Study of a Family Company in Indonesia. Journal of Open Innovation: Technology, Market, and Complexity, 6(3), p.90.

Nkemkiafu, A.G., Asah, N.P. and Felix, N., 2019. Strategic Process Innovation Practices On Customer Satisfaction and Market Share. Journal of Marketing Development and Competitiveness, 13(2), pp.49-61.

Ogrean, C., 2018, May. Sustainable Innovation as Competitive Advantage in the Era of Sustainability. In International Economic Conference of Sibiu (pp. 251-265). Springer, Cham.

Parida, V. and Wincent, J., 2019. Why and how to compete through sustainability: a review and outline of trends influencing firm and network-level transformation. International Entrepreneurship and Management Journal, 15(1), pp.1-19.

Tan, Y., Shen, L. and Langston, C., 2012. Competition environment, strategy, and performance in the Hong Kong construction industry. Journal of Construction Engineering and Management, 138(3), pp.352-360.

Vierra, S., 2016. Green building standards and certification systems. Whole building design guide.

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