The experience of entrepreneurs in the venture capital funding process : a signalling theory approach

Abstract

The relationship between entrepreneurs and venture capitalists (VC) has frequently been researched from the VC's point of view. As a result, VCs have implemented a number of techniques to reduce their own information asymmetry. However, because the VC is a professional investor, this dyad has a two-sided information asymmetry with regard to the investing process. With a focus on the signals sent by VCs that led to the reduction of this twosided information asymmetry, the study applied a signalling theory approach to examine the experiences of entrepreneurs during the investment process. The results demonstrated that entrepreneurs take a variety of steps to prepare before beginning the financing process. Through the investment, entrepreneurs were able to identify and evaluate signs that could ultimately result in greater trust and better process clarity. Additional value additions made during the postinvestment period provide additional signals, which may lead to a relationship with a better level of overall quality.