What Do Entrepreneurs Pay for Venture Capital Affiliation?
David H. Hsu
University of Pennsylvania - Management Department
November 11, 2002
University of Pennsylvania Wharton School Working Paper
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.
Number of Pages in PDF File: 45
Keywords: reputation, venture capital, certification, valuation, entrepreneurship
JEL Classification: M13, L14, G30, O32
Date posted: December 26, 2003