Do Conflicting Signals Work Together in Early Stage Financing? Evidence from Hybrid Entrepreneurship

Abstract

Acquiring initial external funding is a major milestone for new ventures. Using signaling theory, this study examines how nascent entrepreneurs can use two types of credible signals: commitment signal and value signal to communicate with external funders to secure initial financial capital for their new venture. We theorize hybrid entrepreneurship can be a negative signal to external funders since it show the entrepreneur’s low commitment to the new venture. However, this negative commitment signal can be relieved by two positive value signals: educational attainment and industry experience. In consistent with our theorization, we find that hybrid entrepreneurs are less likely to secure initial external funding and the negative effect is weaker for entrepreneurs with greater industry experience. Overall, findings in this study conclude that negative signals and positive signals can work together in signaling process.