Variants of agency contracts in family-financed ventures as a continuum of familial altruistic and market rationalities

Funding is a critical dimension of new creation. Although instances of family involvement in new venture financing are common, ironically, their role has been largely ignored in much of the mainstream business and economics literature. When family members invest in the ventures of other family members they must make many choices-either explicitly or implicitly-about organizational form and governance. Consequently, the governance of these exchange relationships tends to be highly variable. This paper explores the primary rationalities governing the exchange relationships in family investment decisions during the early stages of new venture creation. It presents activities as variants of agency contracts occurring within a continuum of familial "altruistic" and business "market" rationalities. Existing venture capital theory is extended through the introduction of rationalities and more comprehensive models of decision-making. (C) 2003 Elsevier Science Inc. All rights reserved.