Human Capital and Conflict Management in the Entrepreneur-Venture Capitalist Relationship: The Entrepreneurs’ Perspective

Modern venture capital is recognised as an important catalyst for fostering entrepreneurship, innovation and economic growth, especially in emerging economies (Lerner, 1999). Venture capital firms seek to support enterprises that progress within a relatively short space of time from start-ups or small beginnings to high growth firms (Shane, 2008). Value-adding activities by venture capitalists (VCs) can result in higher survival rates for investee firms compared to similar ‘non-venture capital’ ventures (Arthurs and Busenitz, 2006). Yet, the input of VCs does not always result in positive outcomes (Zacharakis and Meyer, 2000), and failure or weak performance in investee firms is frequently explained by conflict in the entrepreneur-venture capitalist (E-VC) relationship (Higashide and Birley, 2002; Yitshaki, 2008). Indeed, conflict is almost unavoidable in a relationship often defined by control rather than trust (Das and Teng, 2001) and where power asymmetry typically favours the investors (Pfeffer and Salancik, 2003). The root of much conflict is a failure to agree on the goals to be achieved by an investee firm or the strategy to be adopted in pursuit of those goals (Jehn and Mannix, 2001).