Hsu (2004) - What Do Entrepreneurs Pay For Venture Capital Affiliation
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- This page is referenced in The NBER Entrepreneurship Research Boot Camp Page
- Hsu, David (2004), "What do entrepreneurs pay for venture capital affiliation?", Journal of Finance, 59: 1805-1844 pdf
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.