An Investigation of the Attention Effects of Venture Capitalist Backing on Entrepreneurial Firms

In this paper, we theorize that venture capital (VC) backed initial public offerings (IPOs) attract more attention than non-VC-backed IPOs, as VCs offer important signals to investors searching for information about entrepreneurial firms. We use a measure developed by Google (i.e., Trends) to capture the spikes in investors’ attention experienced by firms in the time period surrounding their IPOs. Our results demonstrate that firms backed by VCs enjoy a far greater spike in attention than their counterparts. Furthermore, we find that firms with more prominent VCs, a larger number of VCs, and VCs situated at farther geographic distances exhibit significantly greater spikes in investors’ attention during the week of their IPO. Combined, the findings show a clear demarcation between entrepreneurial firms with or without VC backing, and they bring to the fore new upshots stemming from the relationship between VCs and entrepreneurial firms, and they raise new potential questions on this relationship and beyond