Do Venture Capital Investors Learn from Public Markets?
53 Pages Posted: 19 May 2016 Last revised: 29 Oct 2020
Date Written: June 1, 2018
We examine whether venture capital (VC) investors learn information contained in public market stock prices. VCs are less likely to stage finance startups and syndicate with other VCs when stock prices are more informative. An instrumental variable approach suggests the relation is likely causal. IPO prospects of their startups are the information contained in prices learnt by VCs. VCs’ learning from the public market positively affects their overall investment and performance. Our paper sheds new light on the real effects of financial markets and suggests the allocative role of security prices is much broader than what we have already thought.
Keywords: Learning; Venture capital; Staging; Syndication; Price informativeness
JEL Classification: G24, G18, G14
Suggested Citation: Suggested Citation