---
_id: '5191'
abstract:
- lang: eng
text: This study examines the relevance of financial and non-financial information
for the valuation of venture capital (VC) investments. Based on a hand-collected
data set on venture-backed start-ups in Germany, we investigate the internal due
diligence documents of over 200 investment rounds. We document that balance sheet
and income statement items capture as much economic content as verifiable non-financial
information (e.g. team experience or the number of patents) while controlling
for several deal characteristics (e.g. industry, investment round, or yearly VC
fund inflows). In addition, we show that valuations based on accounting and non-accounting
information yield a level of valuation accuracy that is comparable to that of
publicly traded firms. Further analyses show that the industry-specific total
asset multiples outperform the popular revenue multiples but lead to significantly
less accurate results than those obtained from the more comprehensive valuation
models. Overall, our findings might inform researchers and standard-setters of
the usefulness of accounting information for investment companies and provide
additional evidence to gauge the overall valuation accuracy in VC settings.
article_type: original
author:
- first_name: Sönke
full_name: Sievers, Sönke
id: '46447'
last_name: Sievers
- first_name: Christopher F
full_name: Mokwa, Christopher F
last_name: Mokwa
- first_name: Georg
full_name: Keienburg, Georg
last_name: Keienburg
citation:
ama: Sievers S, Mokwa CF, Keienburg G. The relevance of financial versus non-financial
information for the valuation of venture capital-backed firms. European Accounting
Review (VHB-JOURQUAL 3 Ranking A). 2013;22(3):467-511. doi:10.1080/09638180.2012.741051
apa: Sievers, S., Mokwa, C. F., & Keienburg, G. (2013). The relevance of financial
versus non-financial information for the valuation of venture capital-backed firms.
European Accounting Review (VHB-JOURQUAL 3 Ranking A), 22(3), 467–511.
https://doi.org/10.1080/09638180.2012.741051
bibtex: '@article{Sievers_Mokwa_Keienburg_2013, title={The relevance of financial
versus non-financial information for the valuation of venture capital-backed firms},
volume={22}, DOI={10.1080/09638180.2012.741051},
number={3}, journal={European Accounting Review (VHB-JOURQUAL 3 Ranking A)}, publisher={Taylor
\& Francis}, author={Sievers, Sönke and Mokwa, Christopher F and Keienburg,
Georg}, year={2013}, pages={467–511} }'
chicago: 'Sievers, Sönke, Christopher F Mokwa, and Georg Keienburg. “The Relevance
of Financial versus Non-Financial Information for the Valuation of Venture Capital-Backed
Firms.” European Accounting Review (VHB-JOURQUAL 3 Ranking A) 22, no. 3
(2013): 467–511. https://doi.org/10.1080/09638180.2012.741051.'
ieee: S. Sievers, C. F. Mokwa, and G. Keienburg, “The relevance of financial versus
non-financial information for the valuation of venture capital-backed firms,”
European Accounting Review (VHB-JOURQUAL 3 Ranking A), vol. 22, no. 3,
pp. 467–511, 2013.
mla: Sievers, Sönke, et al. “The Relevance of Financial versus Non-Financial Information
for the Valuation of Venture Capital-Backed Firms.” European Accounting Review
(VHB-JOURQUAL 3 Ranking A), vol. 22, no. 3, Taylor \& Francis, 2013, pp.
467–511, doi:10.1080/09638180.2012.741051.
short: S. Sievers, C.F. Mokwa, G. Keienburg, European Accounting Review (VHB-JOURQUAL
3 Ranking A) 22 (2013) 467–511.
date_created: 2018-10-31T11:27:42Z
date_updated: 2022-01-06T07:01:43Z
department:
- _id: '275'
doi: 10.1080/09638180.2012.741051
extern: '1'
intvolume: ' 22'
issue: '3'
jel:
- G24
- G32
- M41
keyword:
- value relevance
- equity valuation
- venture capital
- human capital
- start-ups
language:
- iso: eng
main_file_link:
- url: http://www.tandfonline.com/doi/full/10.1080/09638180.2012.741051
page: 467-511
publication: European Accounting Review (VHB-JOURQUAL 3 Ranking A)
publication_status: published
publisher: Taylor \& Francis
quality_controlled: '1'
related_material:
link:
- relation: earlier_version
url: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1449740
status: public
title: The relevance of financial versus non-financial information for the valuation
of venture capital-backed firms
type: journal_article
user_id: '46447'
volume: 22
year: '2013'
...
---
_id: '20869'
abstract:
- lang: eng
text: This study provides evidence of significant biases in multi-year management
forecasts by analyzing a proprietary dataset on venture-backed start-ups in Germany.
We find that revenues and expenses are highly overestimated in each of the investigated
one- to five-year-ahead planning periods. Furthermore, entrepreneurs underestimate
one-year-ahead profit forecasts but clearly overestimate their profit forecasts
for all longer-term forecast horizons. Additional analyses reveal that teams with
prior management experience issue even more overestimated forecasts and misrepresent
their forward-looking information. In contrast, greater asset verifiability and
corporate lead investors are associated with lower levels of forecast errors.
All key results hold if bias is either measured by traditionally comparing forecasts
to ex-post realizations or by using a cross-sectional projection approach based
on historical accounting data developed by prior research.
author:
- first_name: Sönke
full_name: Sievers, Sönke
id: '46447'
last_name: Sievers
- first_name: Christopher Frederik
full_name: Mokwa, Christopher Frederik
last_name: Mokwa
citation:
ama: 'Sievers S, Mokwa CF. Biases in Management Forecasts of Venture-Backed Start-Ups:
Evidence from Internal Due Diligence Documents of VC Investors.; 2012. doi:10.2139/ssrn.1714399'
apa: 'Sievers, S., & Mokwa, C. F. (2012). Biases in Management Forecasts
of Venture-Backed Start-Ups: Evidence from Internal Due Diligence Documents of
VC Investors. https://doi.org/10.2139/ssrn.1714399'
bibtex: '@book{Sievers_Mokwa_2012, title={Biases in Management Forecasts of Venture-Backed
Start-Ups: Evidence from Internal Due Diligence Documents of VC Investors}, DOI={10.2139/ssrn.1714399}, author={Sievers,
Sönke and Mokwa, Christopher Frederik}, year={2012} }'
chicago: 'Sievers, Sönke, and Christopher Frederik Mokwa. Biases in Management
Forecasts of Venture-Backed Start-Ups: Evidence from Internal Due Diligence Documents
of VC Investors, 2012. https://doi.org/10.2139/ssrn.1714399.'
ieee: 'S. Sievers and C. F. Mokwa, Biases in Management Forecasts of Venture-Backed
Start-Ups: Evidence from Internal Due Diligence Documents of VC Investors.
2012.'
mla: 'Sievers, Sönke, and Christopher Frederik Mokwa. Biases in Management Forecasts
of Venture-Backed Start-Ups: Evidence from Internal Due Diligence Documents of
VC Investors. 2012, doi:10.2139/ssrn.1714399.'
short: 'S. Sievers, C.F. Mokwa, Biases in Management Forecasts of Venture-Backed
Start-Ups: Evidence from Internal Due Diligence Documents of VC Investors, 2012.'
date_created: 2021-01-05T11:52:51Z
date_updated: 2022-01-06T06:54:41Z
doi: 10.2139/ssrn.1714399
extern: '1'
jel:
- G24
- G32
- M13
- M41
keyword:
- Management forecasts
- Forecasting biases
- Venture-backed start-ups
- Projection methods
language:
- iso: eng
main_file_link:
- url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1714399
page: '42'
publication_status: published
status: public
title: 'Biases in Management Forecasts of Venture-Backed Start-Ups: Evidence from
Internal Due Diligence Documents of VC Investors'
type: working_paper
user_id: '46447'
year: '2012'
...
---
_id: '20870'
abstract:
- lang: eng
text: This study shows how venture capital investors can identify potential biases
in multi-year management forecasts before an investment decision and derive significantly
more accurate failure predictions. By advancing a cross-sectional projection method
developed by prior research and using firm-specific information in financial statements
and business plans, we derive benchmarks for management revenue forecasts. With
these benchmarks, we estimate forecast errors as an a priori measure of biased
expectations. Using this measure for our proprietary dataset on venture-backed
start-ups in Germany, we find evidence of substantial upward forecast biases.
We uncover that firms with large forecast errors fail significantly more often
than do less biased entrepreneurs in years following the investment. Overall,
our results highlight the implications of excessive optimism and overconfidence
in entrepreneurial environments and emphasize the relevance of accounting information
and business plans for venture capital investment decisions.
author:
- first_name: Sönke
full_name: Sievers, Sönke
id: '46447'
last_name: Sievers
- first_name: Christopher Frederik
full_name: Mokwa, Christopher Frederik
last_name: Mokwa
citation:
ama: Sievers S, Mokwa CF. The Relevance of Biases in Management Forecasts for
Failure Prediction in Venture Capital Investments.; 2012. doi:10.2139/ssrn.2100501
apa: Sievers, S., & Mokwa, C. F. (2012). The Relevance of Biases in Management
Forecasts for Failure Prediction in Venture Capital Investments. https://doi.org/10.2139/ssrn.2100501
bibtex: '@book{Sievers_Mokwa_2012, title={The Relevance of Biases in Management
Forecasts for Failure Prediction in Venture Capital Investments}, DOI={10.2139/ssrn.2100501},
author={Sievers, Sönke and Mokwa, Christopher Frederik}, year={2012} }'
chicago: Sievers, Sönke, and Christopher Frederik Mokwa. The Relevance of Biases
in Management Forecasts for Failure Prediction in Venture Capital Investments,
2012. https://doi.org/10.2139/ssrn.2100501.
ieee: S. Sievers and C. F. Mokwa, The Relevance of Biases in Management Forecasts
for Failure Prediction in Venture Capital Investments. 2012.
mla: Sievers, Sönke, and Christopher Frederik Mokwa. The Relevance of Biases
in Management Forecasts for Failure Prediction in Venture Capital Investments.
2012, doi:10.2139/ssrn.2100501.
short: S. Sievers, C.F. Mokwa, The Relevance of Biases in Management Forecasts for
Failure Prediction in Venture Capital Investments, 2012.
date_created: 2021-01-05T11:59:50Z
date_updated: 2022-01-06T06:54:41Z
department:
- _id: '275'
doi: 10.2139/ssrn.2100501
extern: '1'
jel:
- G24
- G32
- M13
- M41
keyword:
- Management forecast biases
- cross-sectional projection models
- venture-backed start-ups
- failure prediction
- overoptimism
- overconfidence
language:
- iso: eng
main_file_link:
- url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2100501
page: '31'
publication_status: published
status: public
title: The Relevance of Biases in Management Forecasts for Failure Prediction in Venture
Capital Investments
type: working_paper
user_id: '46447'
year: '2012'
...
---
_id: '5196'
abstract:
- lang: eng
text: 'This study shows how venture capital investors can identify potential biases
in multi-year management forecasts before an investment decision and derive significantly
more accurate failure predictions. By advancing a cross-sectional projection method
developed by prior research and using firm-specific information in financial statements
and business plans, we derive benchmarks for management revenue forecasts. With
these benchmarks, we estimate forecast errors as an a priori measure of biased
expectations. Using this measure for our proprietary dataset on venture-backed
start-ups in Germany, we find evidence of substantial upward forecast biases.
We uncover that firms with large forecast errors fail significantly more often
than do less biased entrepreneurs in years following the investment. Overall,
our results highlight the implications of excessive optimism and overconfidence
in entrepreneurial environments and emphasize the relevance of accounting information
and business plans for venture capital investment decisions. '
author:
- first_name: Christopher Frederik
full_name: Mokwa, Christopher Frederik
last_name: Mokwa
- first_name: Sönke
full_name: Sievers, Sönke
last_name: Sievers
citation:
ama: Mokwa CF, Sievers S. The Relevance of Biases in Management Forecasts for Failure
Prediction in Venture Capital Investments. SSRN Electronic Journal. 2012.
doi:10.2139/ssrn.2100501
apa: Mokwa, C. F., & Sievers, S. (2012). The Relevance of Biases in Management
Forecasts for Failure Prediction in Venture Capital Investments. SSRN Electronic
Journal. https://doi.org/10.2139/ssrn.2100501
bibtex: '@article{Mokwa_Sievers_2012, title={The Relevance of Biases in Management
Forecasts for Failure Prediction in Venture Capital Investments}, DOI={10.2139/ssrn.2100501},
journal={SSRN Electronic Journal}, author={Mokwa, Christopher Frederik and Sievers,
Sönke}, year={2012} }'
chicago: Mokwa, Christopher Frederik, and Sönke Sievers. “The Relevance of Biases
in Management Forecasts for Failure Prediction in Venture Capital Investments.”
SSRN Electronic Journal, 2012. https://doi.org/10.2139/ssrn.2100501.
ieee: C. F. Mokwa and S. Sievers, “The Relevance of Biases in Management Forecasts
for Failure Prediction in Venture Capital Investments,” SSRN Electronic Journal,
2012.
mla: Mokwa, Christopher Frederik, and Sönke Sievers. “The Relevance of Biases in
Management Forecasts for Failure Prediction in Venture Capital Investments.” SSRN
Electronic Journal, 2012, doi:10.2139/ssrn.2100501.
short: C.F. Mokwa, S. Sievers, SSRN Electronic Journal (2012).
date_created: 2018-10-31T12:12:28Z
date_updated: 2022-01-06T07:01:43Z
department:
- _id: '275'
doi: 10.2139/ssrn.2100501
jel:
- G24
- G32
- M13
- M41
keyword:
- Management forecast biases
- cross-sectional projection models
- venture-backed start-ups
- failure prediction
- overoptimism
- overconfidence
language:
- iso: eng
publication: SSRN Electronic Journal
publication_status: published
status: public
title: The Relevance of Biases in Management Forecasts for Failure Prediction in Venture
Capital Investments
type: journal_article
user_id: '64756'
year: '2012'
...
---
_id: '5198'
abstract:
- lang: eng
text: 'This study provides evidence of significant biases in multi-year management
forecasts by analyzing a proprietary dataset on venture-backed start-ups in Germany.
We find that revenues and expenses are highly overestimated in each of the investigated
one- to five-year-ahead planning periods. Furthermore, entrepreneurs underestimate
one-year-ahead profit forecasts but clearly overestimate their profit forecasts
for all longer-term forecast horizons. Additional analyses reveal that teams with
prior management experience issue even more overestimated forecasts and misrepresent
their forward-looking information. In contrast, greater asset verifiability and
corporate lead investors are associated with lower levels of forecast errors.
All key results hold if bias is either measured by traditionally comparing forecasts
to ex-post realizations or by using a cross-sectional projection approach based
on historical accounting data developed by prior research. '
author:
- first_name: Christopher
full_name: Mokwa, Christopher
last_name: Mokwa
- first_name: Sönke
full_name: Sievers, Sönke
last_name: Sievers
citation:
ama: 'Mokwa C, Sievers S. Biases in Management Forecasts of Venture-Backed Start-Ups:
Evidence from Internal Due Diligence Documents of VC Investors. SSRN Electronic
Journal. 2012. doi:10.2139/ssrn.1714399'
apa: 'Mokwa, C., & Sievers, S. (2012). Biases in Management Forecasts of Venture-Backed
Start-Ups: Evidence from Internal Due Diligence Documents of VC Investors. SSRN
Electronic Journal. https://doi.org/10.2139/ssrn.1714399'
bibtex: '@article{Mokwa_Sievers_2012, title={Biases in Management Forecasts of Venture-Backed
Start-Ups: Evidence from Internal Due Diligence Documents of VC Investors}, DOI={10.2139/ssrn.1714399}, journal={SSRN
Electronic Journal}, author={Mokwa, Christopher and Sievers, Sönke}, year={2012}
}'
chicago: 'Mokwa, Christopher, and Sönke Sievers. “Biases in Management Forecasts
of Venture-Backed Start-Ups: Evidence from Internal Due Diligence Documents of
VC Investors.” SSRN Electronic Journal, 2012. https://doi.org/10.2139/ssrn.1714399.'
ieee: 'C. Mokwa and S. Sievers, “Biases in Management Forecasts of Venture-Backed
Start-Ups: Evidence from Internal Due Diligence Documents of VC Investors,” SSRN
Electronic Journal, 2012.'
mla: 'Mokwa, Christopher, and Sönke Sievers. “Biases in Management Forecasts of
Venture-Backed Start-Ups: Evidence from Internal Due Diligence Documents of VC
Investors.” SSRN Electronic Journal, 2012, doi:10.2139/ssrn.1714399.'
short: C. Mokwa, S. Sievers, SSRN Electronic Journal (2012).
date_created: 2018-10-31T12:16:45Z
date_updated: 2022-01-06T07:01:43Z
department:
- _id: '275'
doi: 10.2139/ssrn.1714399
jel:
- G24
- G32
- M13
- M41
keyword:
- Management forecasts
- Forecasting biases
- Venture-backed start-ups
- Projection methods
language:
- iso: eng
publication: SSRN Electronic Journal
publication_status: published
status: public
title: 'Biases in Management Forecasts of Venture-Backed Start-Ups: Evidence from
Internal Due Diligence Documents of VC Investors'
type: journal_article
user_id: '64756'
year: '2012'
...