Journal
JOURNAL OF FINANCE
Volume 59, Issue 4, Pages 1805-1844Publisher
WILEY
DOI: 10.1111/j.1540-6261.2004.00680.x
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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.
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