Affiliated Organization

Case Western Reserve University, USA

Abstract

This article seeks to explain how EIR programs help Israeli VC firms maintain high levels of investment in startup firms in the information and communication technology (ICT) industry, effectively overcoming the equity gap that favors established entrepreneurial ventures. The equity gap arises from the perception among VCs that the higher transaction and monitoring costs associated with startup/seed ventures makes investment in them uneconomic. The research investigated how participants view the value of EIR programs and how trust and control influence the VC decision to invest. Data were collected from qualitative research interviews conducted with VC entrepreneurs and executives who participate in EIR programs in the ICT industry, primarily in the Dan Area in central Israel (considered to be that country’s equivalent of Silicon Valley). The findings indicated that EIR programs promote the likelihood of VC investment because they raise what we call the confidence coefficient the VC’s confidence in the entrepreneur’s intention and ability to deliver the deal’s return on investment?by increasing various types of trust (goodwill trust and competence trust) and control (most importantly social control), thereby mitigating the perceived risks that comprise the equity gap.

Volume

6

Issue

3

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