2004/07/22 by David H. Hsu · 16 citations
Business, Management and Accounting · #Private Equity and Venture Capital #Entrepreneurship Studies and Influences #Corporate Finance and Governance
paper · pdf · doi:10.1111/j.1540-6261.2004.00680.x
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 10–14% discount. The evidence suggests that VCs' “extra‐financial” value may be more distinctive than their functionally equivalent financial capital. These extra‐financial services can have financial consequences.