Are Entrepreneurs Overburdened? Exploring the Agency Dilemma in an Entrepreneurial Setting

Sammanfattning: Entrepreneurial finance is of key importance for young firms and as in any other hierarchical structure, it is strongly linked with the agency dilemma. While the principal-agent dilemma has been well documented in large companies, there is a limited contribution focused on agency theory within start-ups and young firms. When considering new enterprises, the key actors do not fit quite so neatly into the existing frameworks because the entrepreneurs are also stockholders of their ventures. We believe that this might have implications regarding the agency control mechanisms with regards to the costs which are incurred by the agent. Thus, this research aimed to examine agency theory within the context of the investor-entrepreneur relationship. By employing a qualitative, multiple-case study design we aimed to discover which mechanisms are used by investors (principal) to control the entrepreneur’s (agent’s) behavior, and how these mechanisms affect the agent. We find that while incentives, monitoring, and screening are also common within young firms, other agency control mechanisms have weak applicability in this context. The effects of these mechanisms are manifold and relate mainly to the risks which are beared by the entrepreneurs and the necessary efforts required from them to ensure the progress of their relationship. Besides contributing to academia by exploring the agency dilemma in an overlooked area, our findings can be useful to entrepreneurs when considering financing options for their ventures.