• Take the money or run? Investors' ethical reputation and entrepreneurs' willingness to partner

      Drover, Will; Wood, Matthew; Fassin, Yves (Journal of Business Venturing, 2014)
      Drawing on the multi-principal–agent perspective, this research models the influence of venture capitalists' reputation for ethical behavior on entrepreneurs' willingness to partner decisions. We test our model using a two-study design. Study one, a conjoint experiment, revealed that explicit knowledge of past unethical behavior negatively affects entrepreneurs' willingness to partner. Interaction effects revealed that factors previously shown to influence the entrepreneurs' evaluations—investor value-add and investment track record—become largely contingent upon and often subjugated by investors' ethical reputation. Study two, a traditional between-subjects scenario experiment, revealed that when entrepreneurs develop their own perceptions about the ethicality of an investor's prior behaviors, the ethical dimension remains highly influential. Further, we find that as the consequences of rejecting funding become more severe (e.g., possible bankruptcy), entrepreneurs become increasingly willing to partner with unethical investors. We also find that high fear of failure entrepreneurs are less willing to partner with unethical investors than their low fear of failure counterparts.
    • The role of ethical reputation in the evaluation of VC investors: The entrepreneurs'view

      Drover, Will; Fassin, Yves (Academy of Management Annual Meeting Proceedings, 2013)
      The intersection of ethics and entrepreneurship has received limited research attention to date (Harris et al., 2009), leaving the ethical dimension of venture capital (VC) investment activity understudied. Leveraging agency theory, we respond to numerous calls for research by modeling and empirically examining how a venture capitalist’s (VC) reputation for ethical behavior impacts the entrepreneurs’ willingness to partner. After putting forward a discussion of ethics in VC, we utilize conjoint analysis alongside post hoc questionnaires to investigate how ethical reputations influence the entrepreneurs’ willingness to partner. We find that—in practice—a considerable proportion of entrepreneurs have encountered unethical investors and that knowledge of such actions profoundly shapes the entrepreneurs’ willingness to partner. Analysis of interaction effects indicate that factors previously shown to drive entrepreneurial evaluations (e.g., value-added capabilities) become largely contingent upon and in many cases subjugated by an investor’s ethical reputation. Collectively, this research underscores the importance of including the ethical dimension in both VC and broader research on entrepreneurship; a number of areas for future research are suggested.