Do venture capitalists have a continuation bias?

Dmitry Khanin, Raj V. Mahto

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)


Venture capitalists (VCs) follow elaborate procedures to identify the top candidates, out of countless aspiring start-ups, for financing and other types of investor support. Purportedly, VCs also carefully evaluate, based on venture performance, whether or not it deserves to receive follow-on funding. But could decision making biases interfere withthe evaluation process? In this article, we introduce the notion of a continuation bias defined as the proclivity to provide follow-on funding contingent on investor's earlier investment. We argue that a continuation bias differs from sunk costs, status quo bias and escalation of commitment as it stems from the dual fallacy-information and narcissistic-exaggerating the benefits of greater data availability at later stages of investment and investor's own contribution to the venture. We also argue that a continuation bias is influenced by contingency factors such that it is more likely to be observed when VCs apply competition-related rather than venture-related investment criteria. A survey of 51 VCs from the US provided support for the hypotheses.

Original languageEnglish
Pages (from-to)203-222
Number of pages20
JournalThe Journal of Entrepreneurship
Issue number2
Publication statusPublished - Sept 2013
Externally publishedYes


  • continuation bias
  • information fallacy
  • involvement fallacy
  • start-ups
  • VC financing

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