Definition
The danger that passing on an investment or accepting certain terms sends negative messages to future investors. In VC, optics matter as much as economics—sometimes you reject money because taking it would look desperate.
Example Usage
They turned down the $5M offer because the signaling risk of taking money from a tier-three firm would hurt their Series A prospects.
Origin
Game theory concept from economics applied to venture capital decision-making in the 1990s
Fun Fact
Signaling risk is why hot startups often reject higher valuations from lesser-known VCs in favor of lower valuations from brand-name firms.
Source: Venture capital strategy and game theory literature
Related Terms
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