What Do Entrepreneurs Pay For Venture Capital Affiliation?

Name: What Do Entrepreneurs Pay For Venture Capital Affiliation?
Cite: 59 J. Of Finance 1805
Year: 2004
Bluebook cite: David H. Hsu, What Do Entrepreneurs Pay For Venture Capital Affiliation?, 59 J. Of Finance 1805 (Aug. 2004)
Author: David H. Hsu
URL: http://www.jstor.org.www.libproxy.wvu.edu/sici?sici=0022-1082(2004)59%3A4%3C1805%3AWDEPFV%3E2.0.CO%3B2-J&origin=serialsolutions&cookieSet=1
Item Type: article
Summary: 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"v alue may be more distinctive than their functionally equivalent financial capital. These extra-financial services can have financial consequences.

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