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Twitter sentiment as a weak signal in venture capital financing

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  • Tumasjan, Andranik
  • Braun, Reiner
  • Stolz, Barbara

Abstract

How do venture capitalists (VCs) incorporate weak and strong signals in the valuation of technology-based startups? Based on a sociocognitive perspective of signaling theory, we introduce Twitter sentiment as a novel and weak signal, which we juxtapose with patents as a traditional, strong signal. While we find a positive association between both signals and VCs' venture valuations, our results reveal that Twitter sentiment does not correlate with actual long-term investment success, whereas patents do. Additionally, we identify and test novelty and experience characteristics (i.e., startup age and VC firm experience) as boundary conditions for our proposed signal-valuation relationships.

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  • Tumasjan, Andranik & Braun, Reiner & Stolz, Barbara, 2021. "Twitter sentiment as a weak signal in venture capital financing," Journal of Business Venturing, Elsevier, vol. 36(2).
    • Handle: RePEc:eee:jbvent:v:36:y:2021:i:2:s0883902620306704
    DOI: 10.1016/j.jbusvent.2020.106062
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