Learning in Funding Relationships : Are VCs Really Different?

The purpose of this paper is to examine how learning about an entrepreneurial project is impacted by asymmetric information. In this paper, a unique data set about entrepreneurial firm's planned capital appropriation is presented to estimate the effect of new information on entrepreneurial firm's valuation. It is demonstrated that only precise and unbiased information allows for early identification.of promising projects. However, it is found that entrepreneurs try to manipulate information disclosed to the VC to ensure continuation of the project. This paper is the first to show empirical evidence for these theories