This study investigates how venture capitalists (VCs) balance upside potential and downside risk across investment stages. Drawing on the attention-based view, we propose a situated attention mechanism—that is, the investment stage represents a situational consideration affecting VC’s attention allocation to different risk dimensions. We argue that varying staging situations drive VCs to prioritize upside potential in the initial stage yet downside risk in the subsequent stage. As such, VCs may initially favor a risky project, but subsequently devalue it. We further propose that these effects are contingent on number of VCs on market, start-up maturity, and VC attention constraints. Our empirical results support our predictions.
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