E T & P Limitations of Agency Relationship *

Abstract

The dynamic ownership arrangements surrounding the venture capitalist–entrepreneur (VC- E) relationship inherent in new ventures make the examination of principals’ or venture cap- italists’ (VCs) and agents’ (entrepreneurs) governance arrangements interesting to explore. This article examines the limitations of agency theory and then stewardship theory in explaining the behaviors of individuals in the VC-E relationship. Our analysis points out the potential problems inherent in each theory’s explanatory ability as it relates to the VC-E rela- tionship. Lastly, theoretical gaps in the VC-E relationship are discussed along with sug- gestions for new theory surrounding this important and intriguing relationship.