Summary 

The investor-entrepreneur relationship is crucial for both parties, yet, much research has largely overlooked its two-sided nature, which requires mutual commitment from both investors and entrepreneurs. Our study, published in the Journal of Management Studies, sought to address this lacuna by probing into the diverse norms and values in shaping their interactions. Drawing on the institutional logics perspective, we posit that a similarity in the two parties’ institutional logics will foster aligned motives and perceptions, which helps to maintain the relationship. We further propose that investment- and context-specific factors shape how both parties interpret and choose their actions. Overall, our study advances the literature on post-financing investor-entrepreneur relationship by shifting the focus from each individual party and its traits to how both the investor and the entrepreneur opt in to jointly shape their relationship.  

Why does it matter? 

The investor-entrepreneur relationship is the conduit through which key social and financial resources flow, promoting the development and growth of new ventures and aiding investors in the management of their investments. Yet, prior work has primarily emphasized the instrumental necessity of this relationship and mainly focuses on the role of either investors or entrepreneurs in formulating it. While extant work has greatly informed our understanding, it still falls short of depicting the intrinsically bidirectional dynamics of relationship development and the key factors that contribute to it beyond the characteristics and intentions of the individual actors. Thus, further research is needed to connect these perspectives and explain how entrepreneurs and investors act and interact in jointly shaping their relationship over time. 

Our course of action 

Grounded in the institutional logics perspective, we argue that while differing logics lead investors and entrepreneurs to diverse beliefs and goals, similar logics can foster mutual understanding and alignment. We further propose that the fit between institutional logic and situational characteristics shapes which identities, goals, and schemas are emphasized. We identify two categories of key situational factors: investment-specific aspects (e.g., investee’s relative standing, entrepreneur’s expertise) and context-specific elements (e.g., access to strategic investors, fund hybridity). We examine these propositions in the VC industry in China to probe the dynamics underlying the post-financing relationship between investors and entrepreneurs. 

Main findings 

Situated in the transition economy context of China, our findings indicate that logic similarity between investors and entrepreneurs increases the likelihood that the two parties’ relationship will be maintained in the post-financing period. Moreover, factors related to the investment and its context can enhance the impact of logic similarity on the propensity to maintain the relationship. 

Implications for scholars 

Our study opens up a new avenue for exploring post-financing dynamics by theorizing and empirically suggesting that similarity in institutional logics facilitates shared norms and communal trust between investors and entrepreneurs in rapidly evolving contexts such as China and other transition economies, leading to more aligned behaviours and goals related to the focal investment, and that the impacts of this similarity are contingent on the context. 

Moreover, departing from the extant studies that often treat the investor-entrepreneur relationship as a static conduit for resource exchange, our study also contributes to the literature on interorganizational relationships by conceptualizing the focal relationship as being embedded with varied values, norms, and goals, and highlighting that situational fit is of central interest. 

Relevance to practioners 

For VC investors, our study offers a framework with which to better explain and predict the likelihood of maintaining their relationships with the new ventures, especially in non-Western contexts. Our findings reveal that when an investor makes an (re)investment decision, apart from the usual indicators of firm quality such as technology and market potential, the investor needs to attend to the portfolio firm’s (entrepreneur’s) values, behavioural norms, and cognitive beliefs. 

For new ventures and entrepreneurs, our findings suggest that similarity in institutional logics offers a foundation from which to better understand the behavioural rationales of their investors. Yet, if entrepreneurs do not have sufficient skills or knowledge to activate the foundation provided by logic similarity, they may not be able to fully capture the benefits of this similarity. In such situations, entrepreneurs might consider referring to contextual factors of the specific investments to mitigate their skills or knowledge insufficiency.