Negotiating equity share and management control of the entrepreneurial new venture
Author(s)
Douglas, EJ
Carlsson-Wall, M
Hjelström, T
Griffith University Author(s)
Year published
2014
Metadata
Show full item recordAbstract
The valuation of entrepreneurial start-ups for the purpose of equity allocation to business angel investors is an enduring point of discord between the contracting parties. Lack of information and lack of trust, plus the asymmetry of both information and trust between the parties, typically cause the investor to apply a higher risk premium and argue for a larger share of the firm's equity than the entrepreneur deems reasonable. Recent literature on interpersonal trust and the inclusion of management controls is incorporated into a conceptual model to examine the potential for a win-win situation based on information provision ...
View more >The valuation of entrepreneurial start-ups for the purpose of equity allocation to business angel investors is an enduring point of discord between the contracting parties. Lack of information and lack of trust, plus the asymmetry of both information and trust between the parties, typically cause the investor to apply a higher risk premium and argue for a larger share of the firm's equity than the entrepreneur deems reasonable. Recent literature on interpersonal trust and the inclusion of management controls is incorporated into a conceptual model to examine the potential for a win-win situation based on information provision and trust building during the negotiation process. Although the entrepreneur and investor may begin with widely divergent ambit claims, hearing and discussing the other's perspectives will redress information asymmetries, build mutual trust and produce a win-win situation for both parties.
View less >
View more >The valuation of entrepreneurial start-ups for the purpose of equity allocation to business angel investors is an enduring point of discord between the contracting parties. Lack of information and lack of trust, plus the asymmetry of both information and trust between the parties, typically cause the investor to apply a higher risk premium and argue for a larger share of the firm's equity than the entrepreneur deems reasonable. Recent literature on interpersonal trust and the inclusion of management controls is incorporated into a conceptual model to examine the potential for a win-win situation based on information provision and trust building during the negotiation process. Although the entrepreneur and investor may begin with widely divergent ambit claims, hearing and discussing the other's perspectives will redress information asymmetries, build mutual trust and produce a win-win situation for both parties.
View less >
Journal Title
Venture Capital
Volume
16
Issue
4
Subject
Marketing not elsewhere classified
Banking, Finance and Investment
Business and Management