Attractiveness, ethnicity, and stage financing: exploring heuristics in venture capital staging

Abstract

Understanding heuristics in stage financing is imperative, given the consequences of staging for both new venture entrepreneurs and VC investors. This study documents how entrepreneurs’ physical attractiveness affects VCs’ staging intensity during the early stages of the funding process, while taking into account the ethnic constellation of a given VC–entrepreneur dyad. Using a dataset for a representative sample of 231 European IT-ventures, the study finds that physical attractiveness of the lead entrepreneur and the ethnic constellation of a given VC-entrepreneur dyad independently and jointly affect a VC’s staging intensity during the early stages of the financing process. These findings were subjected to a two-stage least squares analysis and Heckman selection models.