How to select a promising enterprise for venture capitalists with prospect theory under intuitionistic fuzzy circumstance?

Venture capitalists are confronted with decision-making problems under an uncertain investment circumstance, which lead them to rely heavily on intuition and psychological state to make their decisions in most cases. It has attracted more and more researches to focus on such behaviors of venture capitalists in recent years and along with the development of behavioral finance in venture capital field. Through the review of framework of venture capitalists’ decision-making and the investigation of background of venture capital market in China, we find that the decision-making framework, which is based on the traditional expected utility theory with hypothesis that the investor is completely rational, is inconsistent with reality. Moreover, the decision-making information is often depicted as crisp number with probability that couldn’t express the uncertainty which is the fundamental nature of venture capital circumstance. Therefore, a novel approach that considers both the bounded rationality of venture capitalists and the uncertain circumstance of venture capital in decision-making is urgent to select the promising enterprise in China. Fortunately, prospect theory, as one of the greatest achievement in behavioral finance, thinks that venture capitalists focus on subjective probabilities instead of objective probabilities and show the behavior characterized by risk aversion over gains and risk seeking over losses, which can depict the psychological state of venture capitalists properly. Furthermore, the intuitionistic fuzzy information can express essential uncertainty in venture capital circumstance accurately. Therefore, we adopt Intuitionistic Fuzzy Prospect Theory that integrates both the merits of prospect theory and intuitionistic fuzzy information to aid venture capitalists to make a better decision in the real world. In this paper, the detailed steps of how to select a promising enterprise has been illustrated. Then, a practical example of selecting the promising enterprise for venture capitalists in Ali Capital is provided to exhibit the process of application and exemplify the feasibility of this selecting approach. Meanwhile, from the comparison of ranking results derived by TOPSIS and this approach, we find that the approach proposed in this paper is superior to the TOPSIS in selecting the promising enterprise according to the subsequent funded results of enterprises.