The role of founder-ceo, human capital and legitimacy in venture capital financing in China’s P2P lending industry

Abstract

The paper investigates factors to financing from venture capital (VC) in the Peer to Peer (P2P) lending industry of China. We focus on the signal effects of founder-CEOs, human capital, and legitimacy on venture capital investment. An important issue for entrepreneurship research is how to reduce t information asymmetry between entrepreneurs and potential investors. This paper builds on the signal theory to explain how new ventures can signal their qualities and promising businesses to potential investors to obtain external investment. By using a total of 2388 new ventures in China’s P2P lending industry, this paper analyzed the effects of factors on VC investment. We found that the founder-CEO status and the legitimacy of third-party signals are crucial to obtain the support of venture capital. We found that the CEO’s international experience has positively significant on VC financing, but the industry experience of CEOs is insignificant to get VC investment. The results indicate that new venture should pay more attention to build the ways of signaling and legitimacy of new venture to get external resource providers.