Venture Capitalists and Psychological Contract Violations: an Institutional Approach
نویسنده
چکیده
The expectation of reciprocal obligations lays a foundation for the venture capitalist-entrepreneur relationship. These expectations, or perceived promises, constitute a psychological contract between the venture capitalist and the entrepreneur. In this paper, we are concerned with four forms of psychological contract violations in this relationship: i) disagreements over the strategy of the portfolio firm; ii) incompetence; iii) shirking; and iv) opportunism. We use the institutional theory as our frame of reference when explaining venture capitalists' behavior in situations where psychological contract violations occur. Our study is based on a survey conducted among 78 venture capitalists in Finland and Sweden. Our results show that the choice of the behavioral response is dependent on the institutional pressures exerted by the venture capital and the business community. It seems that venture capitalists with strong ties to their colleagues and entrepreneurs use more active and constructive approaches than venture capitalists with a lesser exposure to venture capital and business communities. In addition, there exist country-level differences in responses to unmet expectations. This is one of the very first studies focusing on the behavior of venture capitalists facing disappointments in their relationship with the entrepreneur, and it contributes to the psychological contract literature by analyzing the impact on institutional forces on human behavior in troubled inter-organizational relationships.
منابع مشابه
Rationale of Securities and Covenants in Venture Capital Contracts: an Application to South Africa
Venture capitalists are investing their money in portfolio enterprises and hence are putting their capital at risk. As portfolio enterprises may pursue different objectives than those of their financiers, venture capitalists may perceive agency problems as an important risk factor. Venture capitalists can limit the scope of these risks by specifying the form of financing that they provide to po...
متن کاملVenture Capitalists, Monitoring and Advising
Venture capitalists are widely regarded as financial intermediaries who provide not just financing, but also advice and monitoring. This view rests on solid empirical foundations: according to Gorman and Sahlman (1989), for example, lead venture investors visit each portfolio company an average of 19 times per year, and spend 100 hours in direct contact (on site or by phone) with the company. V...
متن کاملThe allocation of control rights in venture capital contracts
Venture capitalists often hold extensive control rights over entrepreneurial companies, including the right to fire entrepreneurs. This paper examines why, and under what circumstances, entrepreneurs would voluntarily relinquish control. Control rights protect the venture capitalists from hold-up by the entrepreneurs. This provides the correct incentives for the venture capitalists to search fo...
متن کاملFinancing Ventures ∗ by Jeremy Greenwood , Pengfei Han and Juan
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists assess the viability of startups. If viable, VCs provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with ...
متن کامل