How Do Venture Capital Firms Manage Narcissistic Entrepreneurs?

Abstract

Narcissism could turbocharge or doom a promising entrepreneurial company. We study how venture capital firms (VCs), one major capital provider for early-stage entrepreneurial companies, manage narcissistic entrepreneurs. We find that VCs prefer to invest in companies with narcissistic entrepreneurs. Conditional on investing in entrepreneurial companies, VCs are also more likely to impose contingent contracts on narcissistic entrepreneurs that would require the latter to compensate the VCs if certain pre-specified targets fail to be met. Furthermore, conditional on accepting the contingent contracts, narcissistic entrepreneurs are subject to more restrictive contingent contracts.