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Can cognitive biases explain venture team homophily?

2009

Simon Parker

Although venture teams whose founders are dissimilar (heterophilious) tend to outperform teams whose founders are similar (homophilious), most new venture teams are characterized by homophily. I try to explain this puzzle with a learning model in which founders are prone to two cognitive biases: overoptimism and self-serving attributions. Founders choose cofounders with similar beliefs as themselves because they expect this to promote the most effective allocation of effort to the venture. Self-serving bias reinforces and perpetuates these beliefs. In principle, informed outsiders (e.g., practitioners or hands on investors) can improve venture team composition compared with private choices by founders. Copyright Β© 2009 Strategic Management Society.

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