Research on the Relationship Between Venture Capitalists’ Trust in the Entrepreneur and Their Investment Behaviors

Abstract Venture capitalists’ trust in entrepreneurs and their investment behaviors does not interact directly; Trust is a psychological state rather than static and stable phenomena. The relationship is affected by multiple factors. This study aims to develop a better understanding of the complex relationship and to show the degree of influence among factors, and to reveal “The Bewilderment of Decision-making” of VC. Based on SEM, this paper analyzes the relationship between the factors: the influencing factors at the initial stage of trust, trust, investor risk appetite, entrepreneurs’ behaviors, capitalists’ decision-making Behaviors, capitalists’ post-investment Behaviors. Our qualitative analysis is based on data by issuing 323 questionnaire surveys of 104 Chinese venture capital firms which are divided into different regions by Global Entrepreneurship Monitor (GEM). By analyzing various behaviors, we find that entrepreneurs’ behavior is a key factor in this relationship. Several factors studied earlier have a positive impact on the capitalist’s pre-investment decision-making behavior, but no significant impact on post-investment behavior. These results include trust and investor risk appetite. Through interviews, it was found that the capitalist’s post-investment behavior was related to the capitalist’s ability, resources, management mechanism and other factors.