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The conflict potential of the entrepreneur’s decision-making style in the entrepreneur-investor relationship

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Abstract

While prior research has indicated the importance of conflicts between investors and entrepreneurs, little is known about their causes. We use theory on entrepreneurial decision-making to examine the impact of a founding team’s causal versus effectual decision style on the level of perceived task conflict that founders experience with their venture capitalists. Based on a sample of 141 German ventures, we find that a founding team perceives fewer conflicts when following the causal principle of overcoming the unexpected and the effectual principle of affordable loss.

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Notes

  1. The VCF was not required to continue to hold equity in the venture. Robustness checks revealed stable results after exclusion of nine non-active investments.

  2. As a robustness check, we reran the analyses excluding openness of relations. Results remained robust.

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Authors and Affiliations

  1. TIME Research Group, RWTH Aachen University, Kackertstrasse 7, 52072, Aachen, Germany

    Daniel Appelhoff, René Mauer & Malte Brettel

  2. Area Entrepreneurship, Governance and Strategy, Vlerick Business School, Reep 1, 9000, Ghent, Belgium

    Veroniek Collewaert

Authors
  1. Daniel Appelhoff
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  2. René Mauer
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  3. Veroniek Collewaert
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  4. Malte Brettel
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Corresponding author

Correspondence to René Mauer.

Appendix

Appendix

Information on constructs and items

Causation (adapted from Brettel et al. 2012)

 Goals-orientation (α = 0.90)

  1) Our project was specified on the basis of given targets.

  2) The starting point for the project was concrete company targets.

  3) Starting with given project targets, the required means/resources were defined.

  4) Starting point of our project was concisely given company targets.

  *) The target of our project was clearly defined in the beginning.

 Expected returns (α = 0.81)

  1) Decisive for the project were considerations about potential returns.

  2) The selection of options for our project was mostly based on calculations of potential returns.

  3) We mainly considered the potential odds of the project.

  4) Decisions on capital expenditures were primarily based on potential returns.

 Competitive analysis (α = 0.92)

  1) We tried to identify risks of the project through thorough market analysis.

  2) We have taken our decisions on the basis of systematic market analysis.

  3) Our focus was rather on the early identification of risks through market analysis in order to be able to adopt our approach.

  4) In order to reduce risks, we focused on market analyses and forecasts.

 Overcome the unexpected (α = 0.79)

  1) New, surprising results and findings were only integrated when the original project target was at risk.

  2) Our mode of operation focused on reaching target without any delay.

  *) The project planning was basically carried out at the beginning of the project.

  4) We first of all took care of reaching our initially defined project targets without delay.

  5) We have always focused on reaching the initial project target.

  *) Potential setbacks or external threats were avoided by the use of upfront market analysis.

Effectuation (adapted from Brettel et al. 2012)

 Means-orientation (α = 0.82)

  1) Our project was specified on the basis of given resources (e.g., capabilities within team).

  2) The starting point for the project was given means and resources.

  3) Starting with given means, the project target was defined.

  4) Starting point of our project was rather available resources than concisely given project targets.

  *) The target of our project was clearly defined in the beginning (reverse-coded).

 Affordable loss (α = 0.76)

  1) Decisive for the project were considerations about potential losses.

  2) The selection of options for our project was mostly based on a minimization of risks and costs.

  3) We mainly considered the potential risk of the project.

  4) Decisions on capital expenditures were primarily based on potential risks of losses.

 Partnerships (α = 0.73)

  1) We tried to reduce risks of the project through internal or external partnerships and agreements.

  2) We jointly decided with our partners/stakeholders on the basis of our competences.

  3) Our focus was rather on the reduction of risks by approaching potential partners and customers.

  4) In order to reduce risks, we started partnerships and received pre-commitments.

 Leverage the unexpected (α = 0.79)

  1) New, surprising results and findings were integrated – even though this was not necessarily in line with the original targets.

  2) Our mode of operation was flexible enough to always adjust targets to new findings.

  *) The project planning was carried out in small steps during the project implementation.

  4) Despite potential delays in project execution, we were flexible and took advantage of opportunities as they arose.

  5) We allowed the project to evolve as opportunities emerged – even though the opportunities weren’t in line with the original project target.

  6) Potential setbacks or external threats were used as advantageously as possible.

*) Item eliminated during factor analysis

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Appelhoff, D., Mauer, R., Collewaert, V. et al. The conflict potential of the entrepreneur’s decision-making style in the entrepreneur-investor relationship. Int Entrep Manag J 12, 601–623 (2016). https://doi.org/10.1007/s11365-015-0357-4

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