Group-3 Anil Kumar Chandana Pradeep

Introduction
The research has been characterized in 3 parts:
Need to "put boundaries on our ignorance Understanding the market and identify mechanisms by

which it could be made to work more efficiently and effectively

Third, and partly as a consequence of these two trends,

research on informal venture capital has not been characterized to date by a high level of theoretical sophistication, although recent research has considered the applicability of the pecking order hypothesis decision theory, the economic analysis of altruism, and agency theory

Characteristics Of The Investment Decision Situation

Screening

Decision to pursue initial awareness of opportunities Review of business plan or outline Decision on rejection or follow-up with entrepreneur Initial reaction to the opportunity

Assessment

Evaluation of the merits of the info resource Degree of confidence in the referrer or enter negotiations Quality of the info is key to reject/proceed decision Issue of trust in the medium of information dissemination
Reaction to Entrepreneur team Decision to reject or enter negotiation Management team and financial return factors increase Due diligence through network of personal contacts To make investment decision Issue of personal chemistry grow in importance Issue of deal structure and pricing grow in importance One major factor likely to lead to rejection by the investor

Evaluation Negotiation

Involvement

Decision to become involved or remain hands-off Decision on level of involvement.

Swift Trust
It is a concept relating to temporary teams whose existence is formed around a clear purpose and common task with a finite life span

Swift Trust elements

Willingness to suspend doubt about whether others who are

"strangers" can be counted on in order to get to work on the group's task

Positive expectation that the group activity will be beneficial It is built and maintained by a high level of activity and responsiveness

CalculusTrust that exists between individuals in the early Based Trust stage of relationship

Knowledge- Trust which exist between individuals who know each other well enough that allows each to make Based Trust predictions about the other

IdentificationBased Trust Trust that exists because the parties effectively

understand and appreciate the others wants

Swift Cooperation Criteria

Utility

Description
An individuals perception of the potential economic value of a situation. Eg. Expected return on an investment An individuals perception of the potential non economic value of a situation An individuals perception of the potential loss from a situation An individuals perception of the professional ability of another individual. Characterized by comments regarding market analysis, data availability, quality, etc.

Importance

Risk

Competence

Coordinator judgment

An individuals perception of the coordinating partys ability to select potentially successful opportunities for investment Comments on any other aspects of the business that cannot be coded in any other category

Other

Protocol for Trust & Cooperation Identification

It covers both the trust criteria and cooperation

criteria Trust criteria includes calculus based-trust, knowledge based-trust and identification based-trust
Which are consistent with the factors utility,

importance, risk, competence, coordinator, judgment Verbal protocol analysis- involves asking respondents to think out loud while they perform a particular task and is based on vocalization of thoughts which has the form of inner speech

Classification of thought segments in the protocols: statement type

DESCRIPTION: Non-evaluative statement consisting of verbatim or paraphrased quotation of information presented in the plan
RECALL: Non-evaluative information based on the past experience of the respondent PRECONCEPTION: Judgmental statement based on the previous experience/background knowledge INFERENCE: Statement that involves a judgment on some part of the plan

 QUESTION: Statement that seeks further information

ACTION: Statement of intention or action to be performed

(E.g. to search for the source of information)

COMMENT: Un codable or irrelevant statement

TRUST AND INVESTMENT DECISION

Study on proposal of investment opportunity of domain 1

Out of 10 investors, 9 are rejected the proposal 5 investors account for 71% of coded thoughts

The frequency matrix gives an indication of the information

types frequently used in the investors decision of domain 1

The result of this verbal protocol analysis can be summarize in 3

headings: Evidence of trust Evidence of cooperation Nature of the statement type

Verbaldescription PROTOCOL FREQUENCY ANALYSIS Recall Preconcp Inference Question Action

tion CBT KBT IBT U Low 1 22 2 13 23 1 6 1 -

Commen t 2 -

Total no 48 4 19 22.5 1.9 0.0 8.9

U Med
U High I Low I Med I High R Low R Med R High C Low C Med C High CJ Low CJ Med CJ HIGH Other Total

1 1

-1 1 2 5

5
3 1 1 7 10 7 1 3 2 2 79

1
1 1 1 2 6 25 5 3 1 5 81

1 11 7 1 21

1 1 4 6

2 1 1 5 --5 1 2 1 20

6
6 2 2 10 19 51 6 21 1 5 13 213

2.8
0.0 2.8 0.9 0.0 0.9 4.7 8.9 23.9 2.8 0.0 9.9 0.5 2.3 6.1

0.5

2.3

37.1

38

9.9

2.8

9.4

Evidence of Trust
Calculus-based trust: 92% of trust references
Dealing with swift trust situation in which investors are being asked to express an evaluate opinion and reach a decision on an investment opportunity that they are seeking for first time Which identifies calculus-based trust as the most common form of trust in business relationships Limitation of research: lack of investors who make a positive decision to explore the opportunity. If the investors take positive decision then they rely on knowledge based trust or identification-based trust

Evidence of cooperation
Conclusions drawn from the table:
1.

Investor thoughts are dominated by comments about the low perceived competence of the entrepreneur team

2.

Comments about risk account. The importance of an investors perception of the potential loss from a situation is consistent with the view that the initial screening stage investors are looking more for reasons to reject an opportunity without investing significant time and effort

Contd
3.

The issue of coordinator judgment is of considerable importance in the initial screening situational domain. Suggesting that there may be a complex interpretation of situational domains1 & 2
The utility of the opportunity, in terms of the investors perception of the economic value of the situation ranks relatively low The investor perception of the potential non-economic value of the situation, is of almost no importance at this stage of the process

4.

Nature of the Statement Type

Informal investors make decisions in this domain based on the preconception and inference, there is relatively little use made of recall, action or question
Preconception are more likely to be negative than positive at this stage because preconceptions arise from the a lack of information in the proposal itself This can be rectified by the entrepreneur, most reflect strongly held investor preconceptions that have been formed before the proposal has been read Entrepreneurs are capable of modification of the proposal

Contd
The combination of low competence, high risk, low coordinator judgment, low importance and low utility generate a high cooperation threshold When we combine with calculus-based trust, it is unsurprising that only one

investor in the sample would consider the opportunity further

Swift Trust and the Role of the Coordinator

Study to illustrate the trust issues with the coordinator judgment in the domain 2(contains 19 business angels)- which illustrates the potential applicability of the swift trust/swift cooperation framework to the analysis of informal investment decision making
2/3rd

of these business angels derive information on investment opportunities form personal networks with friends and associates

Other are more interested in the key players than the referral (perception

that referral made no difference)

Contd
Opinion of the actual activities of business introduction services, some are positive and others are negative view and 2 of them had insufficient knowledge The criticisms of negative views are grouped into 5 headings:
i.
ii.

Opportunities provided are of poor quality and people not screened

The staff poor- low experience

iii.
iv.

The information provided on opportunities

Business introduction services often act only as forwarding agents for the information

v.

There is low of sophistication in the matching process

 Majority have a low opinion of the quality of opportunities provided by business introduction services Some investors are suspicious that if a business has to seek an investor

through a business introduction service rather than finding one through the entrepreneurs own contacts
The degree of trust in and willingness to cooperate with a coordinator body or organization has in turn influence on how the merits and attractiveness of

the investment opportunity itself is perceived.

The role of the coordinator in the informal investment decision therefore requires the development of trust in two sets of actors:
Trust in the promoters of the investment Trust in the source of information on the opportunity