From Elimination to Investment: A Configurational Analysis of Signaling in Venture Funding Success

To manage information overload when screening hundreds of companies, early-stage venture capitalists rely on heuristics—particularly elimination-by-aspects, where investors quickly discard companies lacking specific signals. This can lead to significant missed opportunities, such as when Bessemer Partners did not invest in Google due to its founders' inexperience. Despite that, current research has not explored how entrepreneurs circumvent the lack of signals when fundraising. In fact, studies typically examine variables in isolation, which commonly leads to elimination-by-aspects narratives (e.g., highly educated entrepreneurs are more successful). To understand how entrepreneurs avoid elimination-by-aspects, we employed Coincidence Analysis to analyze the background of 378 entrepreneurs who successfully raised capital from five leading VC firms, complementing it with 15 interviews with decision-makers from these firms. Our findings reveal four successful signal configurations, three of which would have led to elimination by aspects. Results suggest that VCs bet on signals that can be categorized in distinct modes (novice versus experienced) of opportunity recognition and exploitation, indicating multiple substitution effects that help entrepreneurs avoid elimination-by-aspects. By doing so, this study contributes to both signaling theory and entrepreneurial opportunities literature, suggesting new paths for future studies bridging these perspectives.