Rose-Colored Glasses: Availability and Overoptimism in New Venture Formation

Millions of startups are competing right now for funding, customers, and market share, but an extremely small percentage of these new ventures will survive. Given the extremely low odds of success, it is perplexing that the entrepreneurs who found new firms enter the market en masse. Do these founders overoptimistically believe they can beat the odds? Or instead are they influenced by mass media portrayals of a promising market? Despite its rarity, venture capital raising has captured the media’s attention rather than the far more common occurrence of venture death. Drawing upon the entrepreneurial cognition literature regarding heuristics and biases, we theorize that frequent media mentions make information about fundraising more “available” to prospective entrepreneurs, increasing their motivation to start a venture by causing them to overestimate the magnitude of funding they will be able to raise. We find support for both personal (dispositional optimism) and situational (media influence) factors that drive market entry through a mixed methods approach including a ten-year archival study and a randomized experiment (N = 317). Implications for the hubris theory of entrepreneurship and individual market entry are considered.

zoom link: https://eur-nl.zoom.us/j/92760366200?pwd=enBGYWJyejNheGtEU0lKT3Fwdmp2UT09