This project is funded by the European Union under Horizon2020 Research and Innovation Programme Grant Agreement n°824091
European Union

Signal sequences: Venture Capital, IPO and Valuation of Entrepreneurial Ventures at Acquisitions

December 21, 2020

The fifth RISIS Research Seminar will take place on 13 January from 12:30 am to 2:00 pm (CET) and will focus on Signal sequences: Venture Capital, IPO and Valuation of Entrepreneurial Ventures at Acquisitions with a presentation of  Dr. Massimo G. Colombo and Dr. Benedetta Montanaro, Politecnico di Milano. Dr. Tom Vanacker, Ghent University is involved as a discussant.



The paper studies how a sequence composed of multiple signals influences the valuation that entrepreneurial ventures receive at acquisition. Along the venture life-cycle, startups generally first obtain capital from VCs and then go through an IPO. In particular, the strength of the former signal influences the way the receiver perceives the latter signal and may become a double edged sword. The researchers argue that, after receiving a strong signal relating to the type of VCs that are backing a focal startup, investors set a high aspiration level about the quality of the startup.



Consequently, a subsequent weak signal relating to the type of stock market in which the startup is listed may have a detrimental effect on the firm’s valuation. The researchers test the hypotheses by performing a difference-in-difference model on a sample of 1.935 European entrepreneurial ventures. Results show that a strong signal related to being VC-backed will make market observers set their expectations on the firm’s quality at a higher level so that becoming public on a less reputable market will decrease its valuation.