Information Frictions in New Venture Finance: Evidence from Product Hunt Rankings

45 Pages Posted: 29 Jan 2021 Last revised: 12 Nov 2021

Date Written: November 3, 2020

Abstract

Computing innovations and regulatory changes led to increasing entrepreneurial entry and financing since 2013, particularly in the digital sector. Product Hunt, a crowd-based online platform, emerged to serve an information provision role, generating signals of potential product demand for new ventures by aggregating user upvotes into daily frontpage rankings. Using unexpected variation in the quantity and quality of postings shortly after the focal product is launched, I show that placing one rank higher on the frontpage improves a startup’s fundraising probability by 3.4% within a year. Frontpage rankings affect venture funding outcomes despite being highly noisy signals, highlighting the extent of information frictions between early-stage entrepreneurial firms and venture capital investors.

Keywords: entrepreneurial finance, venture capital, crowdsourcing, online platform

Suggested Citation

Cao, Ruiqing, Information Frictions in New Venture Finance: Evidence from Product Hunt Rankings (November 3, 2020). Available at SSRN: https://ssrn.com/abstract=3774227 or http://dx.doi.org/10.2139/ssrn.3774227

Ruiqing Cao (Contact Author)

Harvard Business School ( email )

Cambridge, MA 02138
United States

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