The diminishing effect of VC reputation: Is it hypercompetition?

Blockchain technology and startup financing: A transaction cost economics perspective

“…In entrepreneurial finance, a high environmental uncertainity and a high information asymmerty between entrepreneur(s) and investors significanty enhances transaction costs involved in financing (e.g., Mahto et al, 2018a, Mahto et al, 2018b. The transaction costs involved in startup financing is so high that many entrepreneurial ecosystems have multiple redundant entities competiting with each other, thereby leading to significant inefficiencies in the system (Mahto et al, 2018a).…”

“…For example, most VCs and angel investors specialize in only certain industries, while some VCs prioritize either entrepreneurs or venture quality in their investment decision (Khanin et al, 2008). Further, entrepreneurs reduce their transaction cost by preferring investment from reputable VCs even when it comes with significant cost (Mahto et al,2018b). Even with prevalent strategies for dealing with high transaction costs, some investors (e.g., VCs) further refine their strategies by focusing on specific characteristics of either entrepreneur (e.g., reputation) or their venture ( Mahto and Khanin, 2013).…”

“…The traditional avenues of raising outside financing are the banks (debt), and angels or venture capitalists (equity or convertible debt) (Mahto et al, 2018b). Banks are reluctant to fund startups because they lack collateral and credit, however established SME often fair better.…”

Entrepreneurial entry: The role of social media

“…For example, high social competence entrepreneurs establish strategic networks to obtain information, resources and more strategic business contacts ( Baron & Markman, 2003 ). Mahto, Ahluwalia and Walsh (2018) supported the role of social capital by arguing that entrepreneurs with high social capital are more likely to succeed in obtaining venture capital funding. Further, entrepreneurship scholars have argued that social networks influence entrepreneurs’ decisions and the probability of executing a plan ( Davidsson & Honig, 2003 ; Jack & Anderson, 2002 ; Ratinho et al., 2015 ).…”

“…The distant network associates could also offer individuals additional resources in the form of entrepreneurial connections to new partners, buyers, suppliers, or talent, which all improve the chance of launching new ventures. It is well known that people, especially venture capitalists and investors, tend to minimize their risk by investing in known entrepreneurs rather than unknown entrepreneurs ( Mahto et al., 2018 ). Thus, we believe social media use is beneficial for entrepreneurial entry.…”