Crowd Predictions in Venture Capital

Abstract

The objective of this study was to apply The Wisdom of Crowds in the setting of Venture Capital. It was explored whether crowds that were large, diverse and independent were more accurate in their predictions than small groups of experts within the industry of venture capital. Additionally, it was investigated whether certain characteristics of experts could explain predictability and if predictions were a result of confidence bias. To measure to the performance of the crowds, a crowd prediction tournament was developed, where four early-stage start-ups were assessed and evaluated on. The results indicated that a group of 58 non-experts could outperform 7 experts with domain knowledge. However, the results were insignificant. The researchers found significant evidence that, when evaluating the potential of start-ups, the product was the most essential evaluation criteria.