Show me the right stuff
Subtitle: signals for high tech startups
By: Annamaria Conti, Marie C. Thursby, Frank Rothaermel
Contributors: Thursby, Marie; Rothaermel, Frank T.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17050; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17050.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "This paper revisits a central issue in entrepreneurial finance, namely the signals technology startups send to external investors to convey information about their quality.  We examine the potential for technology startups to use patents and founders, friends and family money (FFF money) as signals to attract business angel and venture capital funds, patents reflect technology quality and FFF money reflects founder commitment.  We find that if investors value technology quality more (less) than founder commitment, the optimal mix of signals is a relatively higher (lower) use of patents than FFF money.  Regardless of investor preferences, high quality founders should invest more in both signals than in the absence of private information.  This investment is inversely related to the opportunity cost of investing in the signals.  We test our predictions empirically and find strong support for our theoretical view that FFF and patents are endogenously determined signals.  Moreover, we find that startups who invest in both signals receive greater external funds.  When we distinguish between venture capitalist and business angel investment, we find that patents serve as a signal for venture capitalists and FFF money is a signal for business angels (but not vice versa)"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 8/2/2011.

Includes bibliographical references.

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