Conventional wisdom states that if a venture capitalist must choose between a grade A business idea with a grade B founder or a grade B business idea with a grade A founder, then the VC will invest in the second venture. In this study, we examine how a lead founder’s leadership style moderates venture risk to influence VC investment.

Transactional leadership entails an exchange relationship between the leader and the follower, whereby the follower is rewarded for completing tasks within specified quality and timeliness parameters. On the other hand, transformational leadership encompasses a more charismatic and inspirational relationship between the leader and follower that incites the follower to exceed expectations. In a young, high-tech venture operating in turbulent environments where specific expectations are virtually impossible to define, transformational leadership is especially important to firm performance. Since venture capitalists specialize in identifying firms with high expected future performance, we hypothesize that a venture’s lead founder’s leadership style influences VCs’ initial investment decisions as well as post-investment performance.