Producing Unicorns: Exploring the Relationship between Venture Capital and Early Staged Start-Ups in a European Context

Abstract

This thesis investigates how the relationship between venture capital (VC) and early-stage startups is formed by the challenge of conceptualizing an unforeseeable future. In light of the recent exponential influx of financial resources into the European venture capital space, this thesis therefore aims to reduce the knowledge gap that surrounds this elusive industry.VC professionals seek to approximate decision accuracy by relying on heuristics in the absence of financial data. By conducting ten qualitative interviews, split evenly among VC analysts and VC-backed founders, this thesis shows that VC professionals follow directly observable decision cues that manifest in the construction of the founder as an archetype. In contrast to the existing literature, this thesis proposes incorporating a dynamic theoretical framework to explicate the process from deal screening and selection mechanisms of VC professionals to collaboratively aiming towards a liquidation event. Henceforth, the thesis shows the transition from agency theory to cope with pre-contractual information asymmetries to merging a resource-based view (RBV) with stakeholder theory. Successively, the thesis sheds light on the co-creational synergies that unfold after the VC is introduced as a stakeholder to the startup. The analysis suggests that the presence of uncertainty urges VC professionals to rely upon a conviction of people and an elusive network that is elitist and socially reproductive. These networks are susceptive to fear of missing out (FOMO) dynamics. The thesis provides aspiring founders with guidance to curate a narrative that is deliberative in articulating a vision that appeals to VC professionals. It is argued that the primary limitation of the VC model´s fitness to delineate European´s need for innovation is nested in its power-law distribution mechanisms, from which a tiny subset of individuals, industries and innovation hubs are benefiting exponentially. Future research is encouraged to investigate stakeholder friction as an informative theory to address the heightened concerns of systematic overvaluation in private markets.