Signaling for more money: The roles of founders' human capital and investor prominence in resource acquisition across different stages of firm development

• Published in: Journal of business venturing 2018-07, Vol.33 (4), p.438-454
• Main Authors: Ko, Eun-Jeong, McKelvie, Alexander
• Format: Article
• Language: English
• Subjects: Endorsement; Human capital; Investor prominence; Resource acquisition; Signal
• ISSN: 0883-9026; 1873-2003
• DOI: 10.1016/j.jbusvent.2018.03.001

We use signaling theory to explain how new ventures effectively signal future prospects to acquire external resources. Based on a sample of 235 new ventures drawn from a unique dataset combining multiple sources, we examine the signals of founders' human capital (i.e., education, industry experience, and founding experience) and investor prominence and their influence on the amount of external funding received across two stages of venture funding. We find that founders' founding experience and education have the greatest effects for acquiring first-round financing, but in later stages, only the signaling effect from education remains. Furthermore, we find important interactions between founders' human capital and investor prominence in the second round of funding. By utilizing lagged funding information, we show that different types of signals have a dynamic and temporal impact on new ventures' resource acquisition, including the persistence of some signals and the temporariness of others. •Examine the roles of signals from founders human capital and prominent investors in new venture investment•Develop multi-stage model where signaling factors predicting first stage of funding are different from those in second stage•Find that the impact of the signal from human capital changes across rounds of funding•Show a more dynamic and temporal view of signaling across levels of new venture development•Find interaction effects of different types of signals when multiple signals co-exist.