Emergence, Newness and Growth
Edited by Candida G. Brush, Lars Kolvereid, L. Øystein Widding and Roger Sørheim
Chapter 11: Exploring the Venture Capitalist/Entrepreneur Relationship: The Effect of Conflict upon Confidence in Partner Cooperation
11. Exploring the venture capitalist/ entrepreneur relationship: the effect of conflict upon confidence in partner cooperation Truls Erikson and Andrew Zacharakis INTRODUCTION The entrepreneurship literature has long explored how venture capitalists (VCs) add value after they have made an investment in an entrepreneur’s company (for example, Sapienza, 1992; Cable and Shane, 1997). Timmons and Bygrave (1986) propose that the cooperative relationship between a VC and entrepreneur is more important to the success of the business than the capital itself. Yet much can interfere in the relationship and impede its effectiveness, such as the threat of opportunism (Williamson, 1985) that both parties to the deal face (Cable and Shane, 1997). From a strong agency perspective, the underlying assumption is that the entrepreneur (agent) is motivated to act opportunistically to the detriment of the VC (principal) (Sahlman, 1990). The threat of opportunistic behavior lowers confidence in partner cooperation which refers to the perceived level of certainty that one’s partner will pursue mutually compatible interests in the relationship (Das and Teng, 1998). While self-interested behavior to the detriment of the other party is a problem, cooperation can also be hampered when both parties are acting in good faith. Conflict can also impede efficiency in the relationship. Whenever two parties cooperate, there is potential for conflict in both the means (strategy) and ends (goals) that they hope to accomplish (Jehn, 1997; Jehn and Mannix, 2001). In highly uncertain environments, such as those categorized around new venture funding, the possibility of conflict increases, especially as...
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