Trust network sclerosis: the hazard of trust in innovation investment communities

Terry Babcock-Lumish ()
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Terry Babcock-Lumish: University of Oxford, Postal: School of Geography and the Environment, South Parks Road, Oxford, OX1 3QY, United Kingdom, http://www.geog.ox.ac.uk/staff/tbabcocklumish.html

Journal of Financial Transformation, 2010, vol. 29, pages 163-172

Abstract: This article considers the role of trust in structuring and sustaining entrepreneurial networks in Anglo-American entrepreneurial communities. Interviews with stakeholders involved in innovation investment demonstrate how shared identity and experience serve as proxies for trust in influencing decisions, and subsequently how trust can serve as a proxy for thorough due diligence. Where relationship plays a role vital to the venture capital investment process, close dialogue reveals the ways nascent business develop- ment is affected by excessive reliance on trustworthiness, thereby introducing a form of lock-in labeled “trust network sclerosis.” Qualitative data informs this analysis of how opinion-leaders shape high-risk, information-asymmetric investment decisions with ultimate community accumulation and effect. The paper concludes with a discussion of implications for entrepreneurial communities, other high-trust networks, and economic geography broadly.

Keywords: decision-making; innovation; venture capital; trust; networks (search for similar items in EconPapers)
JEL-codes: G24 L14 O30 (search for similar items in EconPapers)
Date: 2010
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