RISK AVOIDANCE STRATEGIES IN VENTURE CAPITAL MARKETS

This research compares risk avoidance strategies employed by business angels and venture capital firm investors. It finds that differences i n their approaches to evaluating risk lead them to hold predictably di fferent views of the dangers of market and agency risk. The former ten d to rely upon the entrepreneur to protect them from losses due to mar ket risk. Consequently, they are more concerned with agency risk than market risk. The latter are more concerned with market risk because th ey have learned to protect themselves contractually from agency risk u sing boilerplate contractual terms and conditions. A likely result of their different approaches to avoiding risk is a segmentation of ventu re capital markets, which has important implications for both entrepre neurs and future research.