- The emotional response can lead to a tendency to adopt more conservative growth strategies, ultimately stifling the entrepreneurial spirit that is essential for innovation and success.
- Anticipated guilt can deter founders from pursuing riskier, potentially more rewarding opportunities, as they may fear the repercussions of failure on their personal relationships.
Entrepreneurship is often characterised by the pursuit of innovative ideas and the willingness to embrace risk.
However, the journey of launching a startup frequently begins with a search for funding, often leading founders to turn to family and friends for initial financial support.
While this practice can provide accessible capital and flexible terms, recent research from Indiana University’s Kelley School of Business highlights a critical downside: the potential for these close relationships to inhibit entrepreneurial risk-taking.
The study, led by professors Donald F. Kuratko, Greg Fisher, and Regan Stevenson, introduces the concept of “funding-source-induced bias.”
The phenomenon suggests that when entrepreneurs accept funds from individuals with whom they share strong personal ties, such as family and friends, they may experience heightened feelings of anticipated guilt regarding their business decisions.
Strength of relationship
The emotional response can lead to a tendency to adopt more conservative growth strategies, ultimately stifling the entrepreneurial spirit that is essential for innovation and success.
The researchers conducted their analysis with a sample of 193 entrepreneurs actively engaged in incubator and accelerator programs. Their findings indicate that as the strength of the relationship between the entrepreneur and the investor increases, so too does the entrepreneur’s apprehension about the potential consequences of their decisions.
The anticipated guilt can deter founders from pursuing riskier, potentially more rewarding opportunities, as they may fear the repercussions of failure on their personal relationships.
While seeking funding from family and friends can be advantageous due to its accessibility and favourable conditions, the study underscores the hidden costs associated with such arrangements.
Entrepreneurs may inadvertently prioritise the preservation of personal relationships over the aggressive pursuit of growth and innovation, leading to decisions that may ultimately hinder the venture’s success.