TitleThe Dynamics of Advice-Giving by Venture Capital Firms: Antecedents of Managerial Cognitive Effort
Publication TypeJournal Articles
Year of Publication2017
AuthorsGerasymenko, V, Eggers, JP
JournalJournal of Management
Date Published2017
KeywordsStrategy & Entrepreneurship

This study investigates what leads managers to allocate constrained
the cognitive effort towards new versus familiar aspects of a business. We
explore this question in the context of venture capitalists’ (VCs) advice-giving
to their portfolio companies on business topics on which they have
advised other ventures in the past, versus on topics new to the VC that
may be outside their areas of expertise. We use both demand-side
(venture-driven) and supply-side (VC-driven) perspectives to build a novel
theory about the antecedents of cognitive effort underlying advice-giving.
By empirically testing our theory using a novel dataset, we find that both
perspectives explain important aspects of advice-giving dynamics for VCs.
This supports the idea that VCs, facing dynamic environments and capacity
constraints, definitely respond to stimuli from ventures, but also that VCs
change their behavior as they accumulate experience in ways that reflect
expanding confidence in their ability to add value and concerns about overextension
of their efforts, depending on the valence of VC experience. Our
findings provide novel insights to the antecedents of cognitive effort and to
research on the VC-venture relationship by exploring the dynamics of how
these advice-giving relationships evolve over time as VCs gain experience.