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

Journal of Financial Transformation, Vol. 29, pp.163-172

32 Pages Posted: 13 Apr 2009 Last revised: 29 Jul 2014

T. L. Babcock-Lumish

Roosevelt House Public Policy Institute at Hunter College

Date Written: March 13, 2009

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

Suggested Citation

Babcock-Lumish, Terry, Trust Network Sclerosis: The Hazard of Trust in Innovation Investment Communities (March 13, 2009). Journal of Financial Transformation, Vol. 29, pp.163-172 . Available at SSRN: https://ssrn.com/abstract=1358926

Terry Babcock-Lumish (Contact Author)

Roosevelt House Public Policy Institute at Hunter College ( email )

695 Park Avenue
New York, NY 10065
United States
+1 202 489 4379 (Phone)

HOME PAGE: http://roosevelthouse.hunter.cuny.edu

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