Signaling for More Money: The Roles of Founders’ Human Capital and Investor Prominence in Resource Acquisition across Different Stages of Firm Development


Author Information : Eun-Jeong Ko '17 Ph.D. (Silberman College of Business. Fairleigh Dickinson University)

Alexander McKelvie (Whitman School of Management, Syracuse University)

Year of Publication : Journal of Business Venturing (forthcoming)

Summary of Findings : We find that different factors affect the amount of money entrepreneurs raise at different financing rounds (e.g. first vs. second round).

Research Questions : What effects do founders' human capital and investor prominence play in the amount of money raised by founders, across stages of new venture development?

What we know : Research on entrepreneurs and fund raising has tended to focus on one round of funding -- usually the first round or at IPO. We show that factors that matter initially for the first round of funding vary in later rounds, and that some of the factors related to the second round of funding work together to help entrepreneurs raise even more money. Our use of signaling theory is unique in that we show a more "dynamic" approach to signals changing over time.

Novel Findings : Founder's human capital matters differently across rounds of funding.

The prominence of the investors is very important for raising future rounds of finance.

Provide a more dynamic, multi-stage examination of funding (rather than just a singular stage) and of signaling theory

Different signals from human capital and investor prominence co-exist.

Novel Methodology : We test our model on a sample of 235 new ventures in the internet advertising industry. We combined data from Crunchbase, VentureXpert, LinkedIn,, newspapers, as well as company websites and social media feeds to increase the accuracy of our founder, venture and investor data.

Implications for Practice : We show the importance of the endorsement from prominent investors in initial funding rounds on subsequent rounds. This suggests that "the company you keep" in early fundraising matters.

New ventures seeking larger sums of investment are better off being run by experienced and educated team members. Think about building your team around that.

Entrepreneurs lacking track records have a much more difficult time raising substantial amounts of money.

Having founders with high levels of education, high previous entrepreneurial experience, and highly prominent investors provides the greatest amounts of funding in subsequent rounds of financing.

Full Citations : Ko, E.J. & McKelvie, A. (forthcoming). Signaling for more money: The roles of founders’ human capital and investor prominence in resource acquisition across different stages of firm development. Journal of Business Venturing.

Abstract : We use signaling theory to explain how new ventures effectively signal future prospects to acquire external resources. Based on a sample of 235 new ventures drawn from a unique dataset combining multiple sources, we examine the signals of founders’ human capital (e.g., education, industry experience and founding experience) and investor prominence, as well as their influence on the amount of external funding received across two stages of venture funding. We find that founders’ founding experience and education have the greatest effects for acquiring first-round financing, but in later stages, only the signaling effect from education remains. Furthermore, we find important interactions between founders’ human capital and investor prominence in the second round of funding. By utilizing lagged funding information, we show that different types of signals have a dynamic and temporal impact on new ventures’ resource acquisition, including the persistence of some signals and the temporariness of others.

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Alexander McKelvie

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