What Do Entrepreneurs Pay for Venture Capital Affiliation?

  • Author(s): David H. Hsu
  • Published: Nov 27, 2005
  • Pages: 1805-1844
  • DOI: 10.1111/j.1540-6261.2004.00680.x


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.

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