Signaling theory in venture capital stage financing research: A review and research agenda

Information asymmetry represents a fundamental challenge in venture capital markets, where investors must evaluate ventures with little to no established performance history. The Signaling Theory offers a lens to analyze how ventures communicate unobservable qualities to potential investors. While existing literature has extensively examined signaling dynamics in early-stage financing, comparatively little attention has been devoted to how signals evolve across the different stages of venture capital financing. This paper addresses this overlooked area through a narrative literature review, that maps signals and their relevance as ventures progress through subsequent stages. The findings suggest that signals should be understood as dynamic mechanisms, whose relevance evolves, rather than as static indicators of venture quality.