We examine the often-overlooked role of formal advisors in early-stage entrepreneurial ventures, specifically their impact on external fundraising. While informal mentors have been extensively studied, researchers have devoted less attention to the formal affiliations entrepreneurs establish with advisors. We propose that, beyond knowledge transfer, formal advisors play a critical signaling role, enhancing a startup’s legitimacy in the eyes of investors. Drawing on signaling theory and the concept of third-party endorsements, we hypothesize that the presence of prominent advisors can compensate for soft team quality signals but cannot substitute for a lack of hard marketplace signals such as customer traction. To test these ideas, we conducted a field experiment during a startup pitch competition in Asia, where we manipulated the presence of advisor information in investor decision-making. Our findings show that formal advisor affiliations significantly increase the likelihood of securing external funding, particularly when team quality signals are weak. This effect is more pronounced among less experienced investors and in contexts with greater complexity and information asymmetry. Our research extends current understanding by highlighting the conditional value of formal advisors, offering practical implications for how entrepreneurs can strategically leverage formally affiliated advisors.
