Instrumental Value Theory and the Human Capital of Entrepreneurs

Abstract

Given the contribution of Schumpeterian entrepreneurship to technological progress and well-being, the accuracy of investment decisions by venture capitalists is a societal issue. Venture capitalists find the human capital of entrepreneurs difficult to assess. This paper employs instrumental value theory to assess the impact of different human capital factors on the performance of new ventures. A meta-analysis of 29 previous empirical studies that examined the effect of founder's human capital on new venture performance suggested that instrumental value theory holds promise as a guide for research on entrepreneurs' human capital and new venture performance. It could also help venture capitalists to make better investment decisions, benefiting society in general.

The relevance of human capital to firm performance: A focus on the retail industry in Kinshasa, Democratic Republic of Congo

“…Human capital represents an investment in education and skills and entrepreneurs provide tangible and intangible resources to a firm. Individuals accumulate these intangible resources through education and experience (Gimmon & Levie 2009). …”

“…Indeed, Oluwatobi and Ogunrinola (2011) argue that human capital is one of the most important factors that is accountable for the wealth of nations and that human capital needs to be strategically cultivated and positioned for the preservation of both the present and the future economic growth and development of a country. Human capital development has the capacity to enlarge people's choices and opportunities through acquired skills and knowledge and eventually to enhance growth in the nation's gross domestic product (GDP) through increased productivity (Gimmon & Levie 2009). …”

“…The importance of education as a form of general human capital has been established in several studies: individuals with higher educational levels are more likely to participate in venture start-ups and the performance of their ventures will likely be significantly higher (Gimmon & Levie 2009). This notion of venture performance is important when considering that past research has found a positive relationship between management experience and venture growth (Urban, Van Vuuren & Barreira 2008).…”

Venture capital and microfinance: an instrumental approach

“…In social economics, while individuals are price takers as in neoclassical economics, prices are not the outcome of preferences but reflect the composition of commodities in the concrete material settings of exchange (Beckert, 2011). In particular, the incorporation of venture capital in a macro framework calls for hard structural theory (Gimmon and Levie, 2009). If a meso-level analysis was at stake, the balance would be tilted in favor of the calculus of individual choice.…”

Social Entrepreneurship Questioning the Status Quo: Waste as a Resource

“…Entrepreneurship is understood in institutional economics as playing an essential role in advancing economic development and human wellbeing (Gimmon and Levie 2009;Klein 1988;McDaniel 2003McDaniel , 2005Warnecke 2013). There has been a growing interest in social entrepreneurs who seek to promote social value, economic development, and environmental sustainability (Mair and Marti 2006;Warnecke 2013).…”