Unveiling signaling processes in early-stage cross-border investment: Evidence from South African entrepreneurs and European business angels

The ever-increasing internationalization and global interconnectedness of entrepreneurship are attracting considerable scholarly attention. In particular, the understanding of the internationalization of early-stage financing, such as business angel investment in cross-border contexts, is gaining relevance. Here, however, the informal nature, the newness of the ventures, and the cross-border environment lead to severe information asymmetries, which make the initiation of collaboration particularly complex. To provide an understanding of this phenomenon, in our qualitative study, we look at how signaling as a potential solution to information asymmetry unfolds in the context of early-stage cross-border collaboration between South African founders and European business angels. Based on our findings, we propose a model that uncovers the underlying cognitive mechanisms through which the early-stage cross-border context influences signaling processes. Moreover, we identify three potential outcomes of these interpretive processes: signal appreciation, signal depreciation, and signal flip, and suggest two potential strategies to mitigate the effects of cognitively biased signal interpretation. We contribute to the broader signaling literature and signaling in international entrepreneurship literature.