Artful Making: What Managers Need to Know About How Artists Work

Incentive Alignment and

Risk Sharing

Venture investors have evolved a sophisticated set of finan-

cial practices to produce incentive alignment among the par-

ties involved in a new venture. Investors want to assure that

their own losses on the venture will be felt by the decision-

makers (the entrepreneurs) so that everyone strives for the

same goals. Investors make sure incentives are aligned by writ-

ing formal contracts that reward the management team only

when investors realize concrete rewards. They make sure

everyone has “skin in the game.” As we have seen, goal align-

ment in artful making is very important, but trickier than sim-

ply writing contracts. ...