Title: Quality signals in early-stage venture capital markets

Authors: Dave Valliere

Addresses: Department of Entrepreneurship and Strategy, Ted Rogers School of Management, Ryerson University, 350 Victoria St., Toronto, M5B 2K3, Canada

Abstract: An integrated model of information signalling within a VC market is developed, drawing from the literature of networked value. Market participants include entrepreneurs, venture capitalists, institutional investors, and professional service firms. An analysis of private information among these participants is used to establish the economic value and potential rationales for the emergence of signalling between each pair of participants, and to suggest specific potential signals of quality within each day. These suggested signals are then used to develop ten propositions for market responses to quality signals by each market participant. This signalling model provides an important basis for better understanding potential strategies of market participants, and may better explain observed behaviours such as the upmarket movement of VCs with increasing experience, the formation of stable VC syndication networks, and the criteria by which entrepreneurs and VCs select their partners.

Keywords: entrepreneurial finance; venture capital; information signalling; quality signals; institutional investors; entrepreneurs; capital markets; entrepreneurship; networked value; partner selection.

DOI: 10.1504/IJEV.2012.048599

International Journal of Entrepreneurial Venturing, 2012 Vol.4 No.3, pp.199 - 213

Received: 17 Dec 2010
Accepted: 07 Apr 2011

Published online: 17 Aug 2012 *

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