Show Me the Right Stuff: Signals for High-Tech Startups


  • We are indebted to Jerry Thursby for insightful comments and suggestions. We also thank Thomas Astebro, David Beck, Victor Bergonzoli, Carolin Haeussler, Matt Higgins, David Hsu, David Ku, Josh Lerner, Laura Lindsey, William Oakes, Florin Paun, Carlos Serrano, Scott Shane, Rosemarie Ziedonis, and seminar participants at the 2010 NBER's Entrepreneurship Working Group Meeting for their valuable comments. Conti acknowledges support from the Hal and John Smith Chair in Entrepreneurship for support via a TI:GER Postdoctoral Fellowship and the Swiss National Foundation. Thursby acknowledges NSF Award #0221600, and Rothaermel acknowledges NSF SES 0545544.


We present a theoretical model of startup signaling with multiple signals and potential differences in external investor preferences. For a novel sample of technology incubator startups, we empirically examine the use of patents and founder, friends, and family (FFF) money as such signals, finding that they are jointly endogenous to venture capital and business angel investment in the startups. For this sample, venture capitalists appear to value patents more highly than FFF money, while the reverse is true for business angels. Moreover, the impact of patents on venture capitalists is larger than the impact of FFF money on business angels.