Trust in Venture Capital

Trust plays a vital role in successful inter-organizational relationships. It lowers transaction costs, facilitates conflict resolution, and improves cooperation and firm performance. Research has focused on analyzing trust in the Venture capitalist (VC)-Entrepreneur relationship. Understanding trust in this context is vital as VCs help entrepreneurs increase their chances of success. Additionally, trust acts as an effective means to curb agency risks, address opportunistic behavior and promote cooperation. The financing of new companies inherently involves limited hard information, high uncertainty, and considerable scope for opportunistic behavior. Investors can therefore be more prone to rely on soft information, including social beliefs such as trust. The evidence shows that lack of trust imposes a hurdle for investments, and that trust increases success and affects investment deal structures. Overall, trust is a force that cannot be ignored in the analysis of venture capital investment.