Abstract

Most research about early-stage investing – venture capital and angel investors who invest in start- up companies with little operating history – focuses on an objective set of structured criteria like market size, track record, patents, or the company’s financials (Fried & Hisrich, 1994; Van Osnabrugge & Robinson, 2000; Shepherd & Zacharakis, 2001). These models focus on investments as economic risk assessments, with less emphasis on the investor’s decision to commit to an entrepreneur (Baum & Silverman, 2004; Zacharakis & Meyer, 2000). Research has examined how trust influences business decisions across a range of relational contexts (Whitener, et al, 1998), yet, how early-stage investors use trust in their analyses remains unclear. Using trust theory, we hypothesize that trustworthiness/subjective assessments of the entrepreneur are distinct from economic/objective considerations of the venture but used in tandem with them. We quantify the impact of trustworthiness on investors’ interest by controlling for the investor’s assessment of the economic metrics of the venture. This study offers insight on the impact of interpersonal assessments by investors on their preference for certain ventures over others.

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