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RESEARCH PRODUCT

Twitter sentiment as a weak signal in venture capital financing

Reiner BraunBarbara StolzAndranik Tumasjan

subject

Venture capital financing05 social sciencesPerspective (graphical)0211 other engineering and technologiesWeak signalNovelty02 engineering and technologyVenture capitalInvestment (macroeconomics)MicroeconomicsManagement of Technology and Innovation0502 economics and businessBusinessBusiness and International ManagementAssociation (psychology)050203 business & management021102 mining & metallurgyValuation (finance)

description

Abstract How do venture capitalists (VCs) incorporate weak and strong signals in the valuation of technology-based startups? Based on a sociocognitive perspective of signaling theory, we introduce Twitter sentiment as a novel and weak signal, which we juxtapose with patents as a traditional, strong signal. While we find a positive association between both signals and VCs' venture valuations, our results reveal that Twitter sentiment does not correlate with actual long-term investment success, whereas patents do. Additionally, we identify and test novelty and experience characteristics (i.e., startup age and VC firm experience) as boundary conditions for our proposed signal-valuation relationships.

yearjournalcountryeditionlanguage
2021-03-01Journal of Business Venturing
https://doi.org/10.1016/j.jbusvent.2020.106062