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Show Me the Right Stuff: Signals for High Tech Startups

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  • Annamaria Conti
  • Marie C. Thursby
  • Frank Rothaermel

Abstract

We present a theoretical model of startup signaling with multiple signals and potential differences in external investor preferences. For a novel sample of technology incubator startups, we empirically examine the use of patents and founder, friends, and family (FFF) money as such signals, finding that they are jointly endogenous to venture capital and business angel investment in the startups. For this sample, venture capitalists appear to value patents more highly than FFF money, while the reverse is true for business angels. Moreover, the impact of patents on venture capitalists is larger than the impact of FFF money on business angels.

Suggested Citation

  • Annamaria Conti & Marie C. Thursby & Frank Rothaermel, 2011. "Show Me the Right Stuff: Signals for High Tech Startups," NBER Working Papers 17050, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17050 Note: PR
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    References listed on IDEAS

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    1. Ashish Arora & Marco Ceccagnoli, 2006. "Patent Protection, Complementary Assets, and Firms' Incentives for Technology Licensing," Management Science, INFORMS, vol. 52(2), pages 293-308, February.
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    Cited by:

    1. Edelman, Linda F. & Manolova, Tatiana & Shirokova, Galina & Tsukanova, Tatyana, 2016. "The impact of family support on young entrepreneurs' start-up activities," Journal of Business Venturing, Elsevier, vol. 31(4), pages 428-448.
    2. repec:eee:tefoso:v:127:y:2018:i:c:p:154-165 is not listed on IDEAS
    3. Zhang, Wei, 2015. "R&D investment and distress risk," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 94-114.
    4. Hanna Hottenrott & Bronwyn H. Hall & Dirk Czarnitzki, 2016. "Patents as quality signals? The implications for financing constraints on R&D," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 25(3), pages 197-217, April.
    5. Patrick Gaule, 2015. "Patents and the Success of Venture-Capital Backed Startups: Using Examiner Assignment to Estimate Causal Effects," CERGE-EI Working Papers wp546, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Zunino, Diego & van Praag, Mirjam C. & Dushnitsky, Gary, 2017. "Badge of Honor or Scarlet Letter? Unpacking Investors' Judgment of Entrepreneurs' Past Failure," IZA Discussion Papers 11017, Institute for the Study of Labor (IZA).
    7. Comino, Stefano & Graziano, Clara, 2015. "How many patents does it take to signal innovation quality?," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 66-79.
    8. Annamaria Conti & Jerry Thursby & Marie Thursby, 2013. "Patents as Signals for Startup Financing," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 592-622, September.
    9. Miozzo, Marcela & DiVito, Lori, 2016. "Growing fast or slow?: Understanding the variety of paths and the speed of early growth of entrepreneurial science-based firms," Research Policy, Elsevier, vol. 45(5), pages 964-986.
    10. Hoenig, Daniel & Henkel, Joachim, 2015. "Quality signals? The role of patents, alliances, and team experience in venture capital financing," Research Policy, Elsevier, vol. 44(5), pages 1049-1064.
    11. Farre-Mensa, Joan & Hegde, Deepak & Ljungqvist, Alexander P., 2016. "The Bright Side of Patents," CEPR Discussion Papers 11091, C.E.P.R. Discussion Papers.
    12. Lahr, Henry & Mina, Andrea, 2016. "Venture capital investments and the technological performance of portfolio firms," Research Policy, Elsevier, vol. 45(1), pages 303-318.
    13. Manolova, T. & Shirokova, G. & Tsukanova, T. & Edelman, L., 2014. "The impact of family support on young nascent entrepreneurs's start-up activities: A family embeddedness perspective," Working Papers 6381, Graduate School of Management, St. Petersburg State University.
    14. Hoenen, Sebastian & Kolympiris, Christos & Schoenmakers, Wilfred & Kalaitzandonakes, Nicholas, 2014. "The diminishing signaling value of patents between early rounds of venture capital financing," Research Policy, Elsevier, vol. 43(6), pages 956-989.
    15. Haeussler, Carolin & Harhoff, Dietmar & Mueller, Elisabeth, 2014. "How patenting informs VC investors – The case of biotechnology," Research Policy, Elsevier, vol. 43(8), pages 1286-1298.
    16. repec:eee:respol:v:46:y:2017:i:9:p:1606-1628 is not listed on IDEAS
    17. Joern H. Block & Christian O. Fisch & Mirjam van Praag, 2016. "The Schumpeterian Entrepreneur: A Review of the Empirical Evidence on the Antecedents, Behavior, and Consequences of Innovative Entrepreneurship," Tinbergen Institute Discussion Papers 16-072/VII, Tinbergen Institute.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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