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Business Angel–Venture Negotiation in the Post-Investment Relationship: The Use of the Good Cop, Bad Cop Strategy
KTH, School of Architecture and the Built Environment (ABE), Centres, Centre for Banking and Finance, Cefin.ORCID iD: 0000-0003-0920-6585
2014 (English)In: Venture Capital: an International Journal of Entrepreneurial Finance, ISSN 1369-1066, E-ISSN 1464-5343, Vol. 16, no 4, 309-325 p.Article in journal (Refereed) Published
Abstract [en]

The paper reports on the utilization of the ‘good cop, bad cop’ negotiation strategy in ongoing investor-venture relationships. Four cases of business angel – venture involvement are studied over several years’ time. Earlier research on the good cop, bad cop strategy has described its efficiency in obtaining maximum distribution in short-term distributive bargaining. This has been explained as a result of the emotional contrast effect unlocked by the sequence of interaction with the bad cop followed by interaction with the good cop. In an ongoing investment relationship, other rules apply. The present findings suggest that only a business angel who is already trusted can become a good cop – by virtue of introducing a bad cop. This is explained as a way of conducting negotiations without destroying the trust that has been built over time in the business angel – venture relationship. The strategy provides a scapegoat for the negativity associated with the negotiations. The bad cop assumes the blame, while the good cop is still trusted and can remain in the relationship, with less risk of being the target of any retained hostility.

Place, publisher, year, edition, pages
Routledge, 2014. Vol. 16, no 4, 309-325 p.
Keyword [en]
Business angel, ‘good cop, bad cop’, negotiation, reciprocal exchange, attribution
National Category
Business Administration
Research subject
Business Studies
Identifiers
URN: urn:nbn:se:kth:diva-153937DOI: 10.1080/13691066.2014.974884Scopus ID: 2-s2.0-84920567082OAI: oai:DiVA.org:kth-153937DiVA: diva2:754174
Note

QC 20161006

Available from: 2014-10-09 Created: 2014-10-09 Last updated: 2017-12-05Bibliographically approved
In thesis
1. Noncontractual Governance Strategies of Business Angels in the Post-Investment Venture Relationship
Open this publication in new window or tab >>Noncontractual Governance Strategies of Business Angels in the Post-Investment Venture Relationship
2014 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Business angels fulfil an important economic role in society by getting involved in early-stage ventures. This dissertation aspires to advance our knowledge of the governance strategies used by business angels in the venture relationship, based on the idea that the choice of governance strategies depends on the individual venture but is also shaped by the strategies adopted by any business angel network (BAN) the business angel is part of.

Major findings are twofold. First, the analysis suggests that governance strategies are role-contingent. The role of the business angel vis-a-vis the venture changes, typically from outsider to insider, as the relationship transitions through different stages. Business angels should only use governance strategies that are perceived as legitimate for their role. Moreover, all strategies do not mix well and some may even neutralize each other when used together. The impact of the BAN on the action of the individual business angel is not straightforward: the formalization of a BAN will certainly restrict individual action, but, on the other hand, it seems that the BAN can also be useful for managing conflicts.

Second, results indicate that conceptualizing the long-term dynamic of the investor-venture relationship in terms of any single theoretical perspective, be it agency theory, procedural justice, or norm-based influence, is too simplistic. The utility of each theoretical perspective is role-contingent: a business angel in the outsider role is better understood with agency theory, whereas a business angel in the insider role is better understood with norm-based influence theory.

The empirical data on individual business angels comes mainly from 30 interviews with 21 business angels, and some supplementary data. The analysis of BANs is made differently and based on a different data set consisting of approximately 150 interviews with BAN members, civil servants, politicians, banks, accountants, and entrepreneurs.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2014. 93 p.
Series
TRITA/KTH/CEFIN-DT, ISSN 1654-9376 ; 10
Keyword
business angels, post-investment, relationship, governance, role contingency, mentoring, investor roles, venture
National Category
Business Administration
Research subject
Business Studies
Identifiers
urn:nbn:se:kth:diva-155318 (URN)978-91-87111-01-3 (ISBN)
Public defence
2014-11-14, F3, Lindstedtsvägen 26, Stockholm, 15:00 (Swedish)
Opponent
Supervisors
Note

QC 20141104

Available from: 2014-11-04 Created: 2014-11-04 Last updated: 2014-11-04Bibliographically approved

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