ABSTRACT
Entrepreneurial finance markets are pervaded by problems of information asymmetry — the difficulty of evaluating the quality of the entrepreneur's ideas and management skills, and the difficulty of monitoring and controlling possible moral hazards and strategic behaviour once the project is underway. Governance considerations affect fundamentally the capacity of small firms to raise capital. The rational choice paradigm holds that governance is endogenous to exchange. The network situates exchange, even in the most dynamic industrial sectors, between autonomous firms which are linked by flexible horizontal relations into an informal community. This chapter provides conceptual map of the entrepreneurial firm's governance. A governance culture and a functional board are necessities for an entrepreneurial firm for which an IPO is proposed. Other governance practices, which characterise formal venture capital, can be integrated into my model of the entrepreneurial firm. Legal reform is thought to be important in bridging the entrepreneurial finance gap.
