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Trust in a Network of Investors and Startup Entrepreneurs

  • Michael Roos
  • Anna KlabundeEmail author
Chapter
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 669)

Abstract

We propose a simulation model of a stylized angel investor market in which the business relations are conditioned on the trust of the angel into the startup entrepreneur. Initial trust depends on social proximity between the angel and the entrepreneur and is later on updated depending on the returns an investor receives from an entrepreneur. We show that investors benefit most in terms of returns from an intermediate sensitivity of trust to returns. From an investor’s perspective, too much trust keeps too many unproductive firms in the market, while too little trust leads to the termination of profitable relations because of minor productivity drops. The proportion of entrepreneurs who reach the objective of leaving the market with enough capital, however, is higher if investors lose trust quickly and stop funding early. In this sense there is a conflict of interest between investors and entrepreneurs.

Keywords

Average Return Initial Trust Business Relation Social Proximity Intermediate Sensitivity 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer International Publishing Switzerland 2014

Authors and Affiliations

  1. 1.Ruhr University BochumBochumGermany

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