Substituting Bonding for Monitoring in New Venture - Venture Capitalist Relationships? A Two Edged Sword

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Prior research grounded in institutional economics recommends bonding strategies that managers of new ventures can pursue to minimize both the percentage equity these firms need to give away and the percentage of board seats they need to relinquish to venture capitalists in exchange for equity capital. Grounded in entrepreneurship and venture capital research this paper questions the wisdom of pursuing these strategies and shows their potentially detrimental effect on firm performance.

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