Signaling in Venture Capitalist--New Venture Team Funding Decisions: Does It Indicate Long-Term Venture Outcomes‪?‬

According to signaling theory, new venture teams (NVTs) can communicate to venture capitalists and other potential investors both a "value" signal and a "commitment" signal, based on the level of personal investment in a venture. Venture capitalists (VCs) typically want to know if a NVT is really committed to a venture and if its members truly believe that a venture has wealth creating potential. Team members can convey signals via their investment behavior. We test our hypotheses based on a sample of 183 VC-backed ventures that we tracked over a ten-year time period. These data indicate that the signals sent to VCs in the early stages of the funding process do not appear to have any significant relationship with long-term venture outcomes. We explore possible explanations for these findings, as well as their implications for signaling theory and future research. Introduction