Abstract

http://ssrn.com/abstract=1841287
 
 

Citations (5)



 


 



Show Me the Right Stuff: Signals for High Tech Startups


Annamaria Conti


Georgia Institute of Technology

Marie C. Thursby


Georgia Institute of Technology - Strategic Management Area; National Bureau of Economic Research (NBER)

Frank T. Rothaermel


Georgia Institute of Technology

May 2011

NBER Working Paper No. w17050

Abstract:     
This paper revisits a central issue in entrepreneurial finance, namely the signals technology startups send to external investors to convey information about their quality. We examine the potential for technology startups to use patents and founders, friends and family money (FFF money) as signals to attract business angel and venture capital funds, patents reflect technology quality and FFF money reflects founder commitment. We find that if investors value technology quality more (less) than founder commitment, the optimal mix of signals is a relatively higher (lower) use of patents than FFF money. Regardless of investor preferences, high quality founders should invest more in both signals than in the absence of private information. This investment is inversely related to the opportunity cost of investing in the signals. We test our predictions empirically and find strong support for our theoretical view that FFF and patents are endogenously determined signals. Moreover, we find that startups who invest in both signals receive greater external funds. When we distinguish between venture capitalist and business angel investment, we find that patents serve as a signal for venture capitalists and FFF money is a signal for business angels (but not vice versa).

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Number of Pages in PDF File: 51

working papers series


Date posted: May 16, 2011  

Suggested Citation

Conti, Annamaria and Thursby, Marie C. and Rothaermel, Frank T., Show Me the Right Stuff: Signals for High Tech Startups (May 2011). NBER Working Paper No. w17050. Available at SSRN: http://ssrn.com/abstract=1841287

Contact Information

Annamaria Conti
Georgia Institute of Technology ( email )
800 West Peachtree Street NW
Atlanta, GA 30308
United States
Marie C. Thursby
Georgia Institute of Technology - Strategic Management Area ( email )
Atlanta, GA 30332
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Frank T. Rothaermel
Georgia Institute of Technology ( email )
800 West Peachtree Street NW
Atlanta, GA 30308-1149
United States
404-385-5108 (Phone)
404-894-6030 (Fax)
HOME PAGE: http://mgt.gatech.edu/rothaermel
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