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The Framing of Perceptions of Fairness in the Relationship between Venture Capitalists and New Venture Teams

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  • Lowell W. Busenitz
  • Douglas D. Moesel
  • James O. Fiet
  • Jay B. Barney

Abstract

This paper investigates how a variety of conditions in place at the time of first-round funding can frame a new venture team's (NVT) perception of the fairness of its relations with its venture capitalists (VC). It assumes that a team's perception of whether its treatment by its VC is procedurally just will affect a team's receptivity to VC advice. An analysis of data from 116 firms funded by venture capitalists indicated that some governance mechanisms and the background of the venture team significantly framed perceptions of fairness in their relationship. A major finding of this research is that the indiscriminant use of contractual covenants can adversely frame a NVT's perception of how fairly it is treated by its VC, which ultimately could inhibit the former's receptivity to advice. Directions for future research are indicated.

Suggested Citation

  • Lowell W. Busenitz & Douglas D. Moesel & James O. Fiet & Jay B. Barney, 1997. "The Framing of Perceptions of Fairness in the Relationship between Venture Capitalists and New Venture Teams," Entrepreneurship Theory and Practice, , vol. 21(3), pages 5-22, April.
    • Handle: RePEc:sae:entthe:v:21:y:1997:i:3:p:5-22
    DOI: 10.1177/104225879702100301
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    References listed on IDEAS

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    3. Samiee, Saeed & Jeong, Insik & Pae, Jae Hyeon & Tai, Susan, 2003. "Advertising standardization in multinational corporations: The subsidiary perspective," Journal of Business Research, Elsevier, vol. 56(8), pages 613-626, August.
    4. Elco van Burg & A. Georges L. Romme, 2014. "Creating the Future Together: Toward a Framework for Research Synthesis in Entrepreneurship," Entrepreneurship Theory and Practice, , vol. 38(2), pages 369-397, March.
    5. De Clercq, Dirk & Sapienza, Harry J., 2006. "Effects of relational capital and commitment on venture capitalists' perception of portfolio company performance," Journal of Business Venturing, Elsevier, vol. 21(3), pages 326-347, May.
    6. JoAnne Yong–Kwan Lim & Lowell W. Busenitz & Laku Chidambaram, 2013. "New Venture Teams and the Quality of Business Opportunities Identified: Faultlines between Subgroups of Founders and Investors," Entrepreneurship Theory and Practice, , vol. 37(1), pages 47-67, January.
    7. Busenitz, Lowell W. & Fiet, James O. & Moesel, Douglas D., 2004. "Reconsidering the venture capitalists' "value added" proposition: An interorganizational learning perspective," Journal of Business Venturing, Elsevier, vol. 19(6), pages 787-807, November.

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