Venture capital financing and the growth of startup firms

This study examines the association between the presence of venture capital (VC) and the employee growth of startups. Grounded in signaling theory, it investigates the impact, if any, of VC financing events upon the growth of these companies and whether the amount of funding affects the intensity of the signal. It further explores whether VC leads to growth or, alternatively, whether growth signals the need for VC. Finally, it documents the relationship between growth in startup financial valuation and changes in the number of employees over successive rounds of financing. (C) 2003 Elsevier Science Inc. All rights reserved.