How entrepreneurs-in-residence increase seed investment rates

Jimmy Schwarzkopf, Moren Lévesque and Andrew Maxwell

Venture Capital, 2009, vol. 12, issue 1, 65-81

Abstract: This article investigates the role of entrepreneurs-in-residence (EIRs) in closing the equity gap born by a lack of venture capital investment in early stage businesses. We conducted interviews with 10 Israeli-based venture capitalists and four EIRs to identify the mechanisms and actions used by EIRs when operating in venture capital firms, and subsequently in funded ventures, that lead to a greater proportion of funds targeted to seed investments. The findings of our exploratory study suggest that EIRs facilitate investment decisions by acting as catalysts in the development of the relationship between the venture capitalist and the fund-seeking entrepreneur. EIRs can thus prevent some of the problems that preclude venture success through the nurturing of trusted relationships with both fund-seeking entrepreneurs and venture capitalists. Furthermore, ex-ante, during and ex-post investment, through building these trusted relationships, EIRs act as transaction-cost reducers, thus increasing expected return on investments from early stage ventures. In an attempt to help reduce the equity gap by developing a better understanding of this key phenomenon, these findings provide guidance to rising entrepreneurs as they develop their early stage businesses, to venture capitalists as they look for investment opportunities, and to governments eager to increase the rate of seed funding.

Date: 2009
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DOI: 10.1080/13691060903435783

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