Title: Of acting principals and principal agents: goal incongruence in the venture capitalist-entrepreneur relationship

Authors: Esben Christensen, Robert Wuebker, Rolf Wustenhagen

Addresses: European Energy Systems A/S, Diplomvej 377, 2800 Lyngby, Denmark. ' Lally School of Management and Technology, Rensselaer Polytechnic Institute, 110 8th Street, Troy, NY 12180, USA. ' Institute for Economy and the Environment (IWO-HSG), University of St. Gallen, Tigerbergstrasse 2, CH-9000 St. Gallen, Switzerland

Abstract: This qualitative study examines the motivations for venture capitalists and entrepreneurs to act opportunistically toward one another. Structured interviews with 14 employees and five investors in a VC-funded startup revealed that venture capitalists expect opportunistic behaviour from entrepreneurs during investment rounds, but largely trust entrepreneurs between financing rounds. Both the venture capitalists and entrepreneurs reported that venture capitalists act opportunistically towards the entrepreneur and other venture partners during all stages of the startup development. These findings have important implications for entrepreneurship research, most notably, the applicability of agency theory as a theoretical perspective from which to view the complex relationship between venture capitalists and entrepreneurs.

Keywords: venture capital; entrepreneurship; agency theory; goal incongruence; startups; case study; information asymmetry; cleantech; energy technology.

DOI: 10.1504/IJESB.2009.023025

International Journal of Entrepreneurship and Small Business, 2009 Vol.7 No.3, pp.367 - 388

Published online: 08 Feb 2009 *

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