What Do Entrepreneurs Pay for Venture Capital Affiliation?

University of Pennsylvania Wharton School Working Paper

45 Pages Posted: 26 Dec 2003  

David H. Hsu

University of Pennsylvania - Management Department

Date Written: November 11, 2002

Abstract

This study empirically evaluates the certification and value-added roles of reputable venture capitalists (VCs). Using a novel sample of entrepreneurial start-ups with multiple financing offers, I analyze financing offers made by competing VCs at the first professional round of start-up funding, holding characteristics of the start-up fixed. Offers made by VCs with a high reputation are three times more likely to be accepted, and high-reputation VCs acquire start-up equity at a 10 to 14% discount. The evidence suggests that VCs' "extra-financial" value may be more distinctive than their functionally equivalent financial capital. These extra-financial servicesn can have financial consequences.

Keywords: reputation, venture capital, certification, valuation, entrepreneurship

JEL Classification: M13, L14, G30, O32

Suggested Citation

Hsu, David H., What Do Entrepreneurs Pay for Venture Capital Affiliation? (November 11, 2002). University of Pennsylvania Wharton School Working Paper. Available at SSRN: https://ssrn.com/abstract=350380 or http://dx.doi.org/10.2139/ssrn.350380

David H. Hsu (Contact Author)

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States
215-746-0125 (Phone)
215-898-0401 (Fax)

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