Biases in Management Forecasts of Venture-Backed Start-Ups: Evidence from Internal Due Diligence Documents of VC Investors

C. Mokwa, S. Sievers, SSRN Electronic Journal (2012).

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Journal Article | Published | English
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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.
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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
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
@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} }
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.
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.
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.

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