CASE STUDY J: INDEPENDENT PRINCIPAL
This chapter develops one of the three analytical case studies (Chapters 8, 9 and 10) which aim to display the fine detail of how risk management and information-handling proceed in the empirical setting of investor and investee as principal and agent. This, the first of these three chapters, is unusual in that it examines the multiple-agent case. It considers the applicability of principalagent analysis to the relationship between a principal who is an ‘independent’ venture capitalist and two of his agents, who run entrepreneurial firms in high-technology areas. It does so using an ‘explanatory case study’1 whose purpose is to see whether the categories suggested by principal-agent analysis (e.g. the monitoring system) are indeed observed in practical venture capital settings, and whether the relations between these categories (e.g. between risk-bearing and effort) are as suggested by theory. The methodology adopted is close to that used by Steier and Greenwood (1995) in their examination of venture capital deal-structuring, and by Sweeting (1991b) in his analysis of new technology-based businesses. It will be shown that when this case study methodology is deployed in these three chapters, it provides striking confirmatory evidence of the applicability of the principal-agent model to the problem of venture capital financing of high-performing business ventures.