Mirror, Mirror on the Wall: The Intergroup Bias and Access to Venture Financing

Sammanfattning: Access to financing is a critical step in enabling economic growth. Ensuring that capital is allocated between ventures in an optimal way is of great importance to society. Investors look at several factors when determining whether to pursue a business opportunity, amongst them the business proposition, industry landscape and team experience. In this paper we show that investment decisions are not wholly based on rational evaluations but are also impacted by mental biases related to the perceived social identity of the investors and social norms around investment behaviour. Our results show that a group of investors with the same university education prefer entrepreneurs that share the same educational background instead of entrepreneurs from a different university. Furthermore, we show that investors' evaluations become even more biased towards the group they identify themselves with when presented with unethical business opportunities. This is shown by greater differences in relative perceptions between the ethical and unethical business pitches. We argue that these results can be explained by individuals' desire to enhance their self-esteem and by the norms created by perceived behaviour within the social group they identify with.