Transaction Cost Economics defines the ‘firm’ or corporation as an entity whose purpose (aside from maximizing profits and increasing shareholder value) is to lower the cost of a transaction in an economic system. In other words, of the cost of a transaction were sufficiently low (a transaction being any exchange of capital, goods, services, knowledge, assets, property, etc between multiple people or groups) then individual workers (freelancers) would be able to conduct complex business with the same efficiency as a large corporation. That means it would take as much time and resources for 2 separate small businesses to enter into a contract to exchange capital for services, as it would a manager to assign work to his employee.

Yet it is obvious that corporations reduce the transaction costs of exchanges, management, and economic processes. Why else would every entrepreneur need a lawyer, yet every employee in a company uses the same company lawyer? But my interest in the transaction cost of entrepreneurship is not in reference to the transaction of management, delegation, or exchanges in products or services. Rather, my interest is in the transaction cost of Deal-Flow.

Someone should conduct research on the amount of time and resources spent by an entrepreneur preparing, planning for, seeking, negotiating, securing, and maintaining either investment, strategic partnerships, acquisition, or equity-based deal-making. Some startups ignore ‘deal-flow’ and focus on the basics such as organic sales. Yet some companies do nothing except push their own deal flow. Many startup lawyers tell me new tech ventures might spend 20% of their revenues on the legal and administrative costs whose purpose is little more than to secure more funding. In other words, the transaction cost of finding, negotiating, and securing either funding or equity-based deal flow is not efficient. Mostly because its a buyer’s market and the startups need to jump quite high to get noticed.

Therefore my interest is in reducing the transaction cost of entrepreneurial deal flow. In other words, both eliminate the guesswork or ‘information assymmetry’ from startups who do not know when or where to get funding or partners, as well as the ‘game theory’ information assymmetry of multiple investors or partners conducting multiple independent reviews and negotiations. Within a corporation the transaction cost of an acquisition is the salary to the analyst and then the VP in charge of presenting the acquisition to decision-makers. In Entrepreneurship, there is no well-defined process.

I have some ideas in mind.