Relational norms and entrepreneurs’ confidence in venture capitalists' cooperation: the mediating role of venture capitalists' strategic and managerial involvement

Abstract

This study examines the relationships between relational norms and entrepreneurs' confidence in the cooperation of their venture capitalist (VC) investors. Based on quantitative data collected from 120 Israeli high tech entrepreneurs, thefindings indicate that relational norms between entrepreneurs and VCs (i.e., shared beliefs and perceived similarities) are positively associated with entrepreneurs' confidence in their VCs' cooperation. However, it was found that VCs' strategic involvement mediates the positive relationship between relational norms and entrepreneurs confidence in their VCs' cooperation, whereas VCs' managerial involvement mediates the negative relationship between relational norms and entrepreneurs' confidence in VCs' cooperation. These findings are supported by six interviews made with entrepreneurs. The findings extend the current literature by indicating that although relational norms serve as a prime criterion for selecting between investment opportunities by VCs, they cannot ensure relational continuity over time as entrepreneurs' confidence in their VCs' cooperation is mediated by VCs' involvement. The findings also suggest that entrepreneurs consider ‘the optimal balance' between relational norms and control as aligned with strategic rather managerial involvement.

Keywords:

• relational norms
• VCs'
• involvement
• entrepreneurs'
• confidence in VCs'
• cooperation

Acknowledgments

An earlier version of this paper was presented at the 2007 Babson College Entrepreneurship Research Conference (BCERC). An earlier version of this paper was published in the 2007Frontiers of Entrepreneurship Research (BCERC). The author wishes to thank Vered Ben-Maor for her assistance in data collection. Thanks are also due to the Schnitzer Foundation for Research on the Israeli Economy and Society for its support. In addition, the author wishes to thank Andrew Zacharakis and Jonathan Arthur for their valuable comments on an earlier version of this paper.