Three Essays on the Role of Information in the Development of Early-stage Startups

Entrepreneurs bring novel ideas to market, ideas that are the engine of economic growth. In the early stages of firm development, however, entrepreneurs face significant uncertainty with respect to both the quality of ideas and the path to commercializing them. Whereas scholars have extensively studied the nature of risky ideas, the uncertain path to firm development has received little attention. The three chapters of this dissertation explore three ways in which information can reduce this uncertainty and increase the probability of entrepreneurial success. In the first chapter, I explore the differences in the types of information provided by angel investors and venture capitalists, two major suppliers of risk capital to early-stage startups. I also examine how these different information types are related to investors' prior experience. I find that angels are more likely than venture capitalists to provide information on entrepreneurial experiments that test important product and market hypotheses. On the other hand, venture capitalists are more likely to provide information on market sizing and business planning. Evidence suggests that angel investors' higher operating experience gives them a skill advantage over venture capitalists in designing and running experiments. In the second chapter, Ajay Agrawal and I report evidence that the impact of information from mentors is not uniform across firms, suggesting that some entrepreneurs absorb information from mentors more than others. I characterize these as high versus low learners and show that information from mentors on task prioritization has a much greater effect on high learners. In the third chapter, Kevin Bryan, Mitchell Hoffman, and I examine the effect of quality signals in the context of startup recruiting. Human capital is one of the most important determinants of firm performance. However, early-stage startups face significant difficulty in attracting job applicants. In a Randomized Controlled Trial, we find that workers' access to signals about the quality of firms' technology and business models substantially affect how they rank startups, and hence the ones they apply to. We also find that workers' beliefs about startups' growth potential are strongly influenced by information about the quality of the firm's core technology and business model.Ph.D