Conflicts and Regrets in the Venture Capitalist–Entrepreneur Relationship

21 Pages Posted: 11 Sep 2015

See all articles by Dmitry Khanin

Dmitry Khanin

University of La Verne - College of Business & Public Management

Ofir Turel

California State University, Fullerton - Mihaylo College of Business & Economics

Date Written: October 2015

Abstract

The goal of this paper is to examine whether conflicts with venture capitalists (VCs) could prompt chief executive officers (CEOs) to experience regret of action (regarding their poor partner choice) or regret of inaction (regarding their own inability to avert conflict). We argue that it is important to examine such feelings of regret that could motivate CEOs to change their financial intermediation and collaboration strategies in the future. We propose that VCs and CEOs may experience two types of conflict: (1) pacing conflicts regarding the direction and speed of venture advancement driven by perceived inequities in economic and social exchange; and (2) prerogative conflicts about the allocation of control rights and relationship issues driven by the perceived inequities in power relations. We hypothesize that pacing conflicts will be related to increasingly intense prerogative conflicts, whereas the latter will be associated with both types of CEO regret. The proposed model is tested with structural equation modeling techniques applied to the data collected from104 CEOs of VC‐backed ventures. All the hypotheses are supported. Our main finding is that CEOs appear to be ambivalent about their conflict with VCs, regretting both their prior choices as an error of judgment (regret of action) and their own lack of initiative (regret of inaction).

Suggested Citation

Khanin, Dmitry and Turel, Ofir, Conflicts and Regrets in the Venture Capitalist–Entrepreneur Relationship (October 2015). Journal of Small Business Management, Vol. 53, Issue 4, pp. 949-969, 2015. Available at SSRN: https://ssrn.com/abstract=2658873 or http://dx.doi.org/10.1111/jsbm.12114

Dmitry Khanin (Contact Author)

University of La Verne - College of Business & Public Management ( email )

United States

Ofir Turel

California State University, Fullerton - Mihaylo College of Business & Economics

P.O. Box 6848
Fullerton, CA CA 92834-6848
United States

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