Abstract
Entrepreneurs face funding challenges due to information asymmetry, which obscures venture quality. I examine how social signaling through employment ties—both direct and indirect—reduces uncertainty in private equity investment. Indirect ties increase the odds of investment by 148%, while direct ties increase the odds by 183%, highlighting investors’ preference for symbolic affiliations. Prior research suggests that investors rely on social ties through two mechanisms—information transfer and social obligation. However, my findings show that employment-based affiliations primarily serve as credibility signals, allowing investors to infer legitimacy without direct knowledge of an entrepreneur’s competence. The strength of social signaling, particularly through prior employment at reputable organizations, significantly influences investment decisions. These findings refine signaling theory by demonstrating that employment-based social capital operates as a symbolic heuristic, rather than a relational or informational advantage, in entrepreneurial finance. This research offers practical insights for entrepreneurs leveraging strategic affiliations to enhance investor perceptions.