Complementarity of Signals in Early-Stage Equity Investment Decisions: Evidence from a Randomized Field Experiment

This study employs a randomized field experiment to causally identify what type of signal is likely to complement another signal in the context of financing technology ventures. The study examines the effect of product certification by expert intermediaries, prominent customers, and social proof (that is, others’ interest in investing in a venture) on interest in investing. These three signals are primarily signals of a venture’s product, market, and investment characteristics, respectively. The study finds that signals of product certification and prominent customers, and product certification and social proof are complements. In particular, investors who were able to view the combined product certification and prominent customer signals have a 72% higher likelihood of indicating an interest in making an equity investment than those who did not receive any of the three signals. Similarly, investors who were able to view the combined product certification and social proof signals have a 65% higher likelihood of indicating an interest in investing. These results suggest that in the context of technology ventures, a signal about product characteristics is the key to unlocking the value of signals of market or investment characteristics. This paper was accepted by Gustavo Manso, finance.