TY - JOUR
T1 - An entrepreneur's choice of venture capitalist or angel-financing
T2 - a behavioral game-theoretic approach
AU - Fairchild, Richard
PY - 2011/5
Y1 - 2011/5
N2 - 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'.
AB - 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'.
KW - angel financing
KW - trust
KW - value-adding abilities
KW - double-sided moral hazard
KW - venture capital
KW - relational rents
KW - empathy
UR - http://www.scopus.com/inward/record.url?scp=79951854427&partnerID=8YFLogxK
UR - http://dx.doi.org/10.1016/j.jbusvent.2009.09.003
U2 - 10.1016/j.jbusvent.2009.09.003
DO - 10.1016/j.jbusvent.2009.09.003
M3 - Article
SN - 0883-9026
VL - 26
SP - 359
EP - 374
JO - Journal of Business Venturing
JF - Journal of Business Venturing
IS - 3
ER -