BRINGING A LETTER OF INTENT OR NOT? A qualitative study on the influence of Letters of Intent on venture capital investors’ intention to invest in new technology-based firms without proof of prototype yet.
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2021-07-07
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en
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This study investigates the effects of letters of intent on venture capital investors’ intention to invest in new technology-based firms without proof of prototype yet. This explorative research conducts a multiple case study in which business angels and venture capitalists are interviewed. The findings show that the effect of a letter of intent on the investors’ intention to invest is mediated by the investors’ perception of different qualities of the startup. That is, a letter of intent has an indirect positive effect through influencing the investors’ perception of the qualities of the entrepreneur and of the market, and a letter of intent can possibly have a positive effect on the investors’ perception of the qualities of the product and of the financial aspects of the startup. These relationships are moderated by the degree of concreteness, the position of the signatory, and the value of the potential customer that signs the letter of intent. However, a condition for the positive effect of a letter of intent on the investors’ intention to invest is that the entrepreneur gathers a maximum of a couple letters of intent. Thus, showing a letter of intent to investors can be beneficial for entrepreneurs.
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Faculteit der Managementwetenschappen