Public Market Information and Venture Capital Investment
45 Pages Posted: 25 Feb 2019 Last revised: 6 Feb 2020
Date Written: February 13, 2019
Using individual VCs’ traffic to filings hosted on EDGAR, I document that venture capitalists (VCs) rely on information from the public market to improve private market investment selection. The number of filings viewed by a VC before a deal is positively related to the probability of a successful exit for the deal. This relationship is more significant for inexperienced VCs who lack the resources and access to private information of established competitors. Although the use of public market information is most beneficial for low reputation VCs, high reputation VCs—with better access to private information—view more public information. This finding suggests that public information is a complement to rather than a substitute for a VC’s private information. Using shocks to VCs’ attention, I confirm that low reputation VCs face more severe resource constraints during investment selection and show that such constraints contribute to the differences in the marginal benefit of public information among VCs.
Keywords: Venture Capital, Due Diligence, EDGAR, Information Acquisition
JEL Classification: G11, G20, G24, G30
Suggested Citation: Suggested Citation