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The effects of social networks and contractual characteristics on the relationship between venture capitalists and entrepreneurs

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Abstract

We show how social ties and contractual factors shape the relationship between entrepreneurs and venture capitalists (VCs). While direct ties result in the VC offering more advice to the entrepreneur, indirect ties result in greater levels of disagreement between VC and entrepreneur. We also find that contractual favorableness is associated with more advice and less disagreement, but that contractual flexibility is surprisingly not significant. The results vary by area of advice and disagreement. Our results suggest that scholars and practitioners must integrate contractual and social network perspectives to better understand the VC-entrepreneur relationship.

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Notes

  1. A number of papers explore conflict in family businesses (including entrepreneurial ones), but the nature of relationships within family businesses is much more personal, and therefore quite different than the relationship between regular entrepreneurs and venture capitalists.

  2. For definitions, see http://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=definitions.

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Authors and Affiliations

  1. Melbourne Business School, 200 Leicester Street, Carlton, Victoria, 3053, Australia

    Kwanghui Lim

  2. Boston Consulting Group, 50 Raffles Place #44-02/03, Singapore Land Tower, Singapore, 048623, Republic of Singapore

    Brian Cu

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  1. Kwanghui Lim
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Correspondence to Kwanghui Lim.

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We thank Mike Peng (Editor-in-Chief Emeritus), two reviewers, Dave Hsu, and Mike Ryall for helpful comments. An earlier version of this paper was presented at the Academy of Management Conference 2007. We thank MBS, IPRIA, and NUS for providing funding and access to patent data. Errors remain our own.

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Lim, K., Cu, B. The effects of social networks and contractual characteristics on the relationship between venture capitalists and entrepreneurs. Asia Pac J Manag 29, 573–596 (2012). https://doi.org/10.1007/s10490-010-9212-x

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