Trust Network Sclerosis: The Hazard of Trust in Innovation Investment Communities

Abstract

This article considers the role of trust in structuring and sustaining entrepreneurial networks in Anglo-American communities. Interviews with stakeholders involved in innovation investment demonstrate how shared identity and experience serve as proxies for trust in influencing decisions, and subsequently how trust can serve as a proxy for thorough due diligence. Where relationship plays a role vital to the venture capital investment process, close dialogue reveals the ways nascent business development is affected by excessive reliance on trustworthiness, thereby introducing a form of lock-in labeled "trust network sclerosis." Qualitative data informs this analysis of how opinion-leaders shape high-risk, information-asymmetric investment decisions with ultimate community accumulation and effect. The paper concludes with a discussion of implications for entrepreneurial communities, other high-trust networks, and economic geography broadly.

Keywords: decision-making, innovation, venture capital, trust, networks

JEL Classification: G24, L14, O30