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An entrepreneur's choice of venture capitalist or angel-financing : a behavioral game-theoretic approach


Reference:

Fairchild, R., 2011. An entrepreneur's choice of venture capitalist or angel-financing : a behavioral game-theoretic approach. Journal of Business Venturing, 26 (3), pp. 359-374.

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Official URL:

http://dx.doi.org/10.1016/j.jbusvent.2009.09.003

Abstract

We develop a game-theoretic model that analyzes the effects of economic and behavioral characteristics on an entrepreneur's choice of financier (venture capitalist or angel). After the entrepreneur has chosen his financier, the dyad faces double-sided moral hazard problems in the form of ex ante effort-shirking, and ex post project-expropriation. In making his choice of financier, the entrepreneur trades-off the following factors. The venture capitalist has higher value-creating abilities than the angel. However, the entrepreneur anticipates a closer, more empathetic and trusting relationship with the angel. Entrepreneur/angel empathy and trust mitigates the double-sided shirking and expropriation threats. Our model contributes to two strands of venture capitalist research; the entrepreneur's choice of financier in the face of double-sided moral hazard problems, and the effect of behavioral factors, such as empathy and trust, on the creation of 'relational rents'.

Details

Item Type Articles
CreatorsFairchild, R.
DOI10.1016/j.jbusvent.2009.09.003
Uncontrolled Keywordsangel financing, trust, value-adding abilities, double-sided moral hazard, venture capital, relational rents, empathy
DepartmentsSchool of Management
RefereedYes
StatusPublished
ID Code23652

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