The Impact of Social Media on Venture Capital Financing: Evidence from Twitter Interactions

65 Pages Posted: 30 Nov 2020

See all articles by Onur Bayar

Onur Bayar

University of Texas at San Antonio - Carlos Alvarez College of Business

Emre Kesici

University of Texas at San Antonio

Date Written: October 26, 2020

Abstract

We examine how information acquisition through social media affects venture capital (VC) investments into VC-backed startups. We collect a unique data set from Twitter API to measure the impact of portfolio companies owned social media (OSM) and earned social media (ESM) on the structure of VC investments. We find evidence consistent with the hypothesis that startup firms’ social media engagement affects the staging of VC financing, the VC syndicate structure, and the probability of a successful exit. If a portfolio company’s social media accounts are more active and the company has a higher engagement volume with its followers, VC firms reduce the extent of stage financing and are less likely to syndicate with each other in financing such a portfolio company. In particular, our results demonstrate that entrepreneurial firms with higher OSM and ESM engagement volume have fewer VC financing rounds, a smaller number of VCs in their VC syndicates, a lower probability of VC syndication, a higher probability of an IPO exit and a higher amount total funding across all rounds. Our findings are robust to a variety of alternative model specifications, subsamples, controlling for endogeneity in VC staging and syndication, selection biases and machine learning approaches.

Keywords: Venture Capital, Stage Financing, Syndication, IPO, Information Acquisition, Screening, Electronic Word of Mouth, Learning, Social Media, Machine Learning, Twitter API

JEL Classification: C72, D82, D83, G14, G24, G30, G40, G41

Suggested Citation

Bayar, Onur and Kesici, Emre, The Impact of Social Media on Venture Capital Financing: Evidence from Twitter Interactions (October 26, 2020). Available at SSRN: https://ssrn.com/abstract=3711796 or http://dx.doi.org/10.2139/ssrn.3711796

Onur Bayar

University of Texas at San Antonio - Carlos Alvarez College of Business ( email )

The University of Texas at San Antonio
One UTSA Circle
San Antonio, TX 78249
United States
210-458-6837 (Phone)
210-458-6320 (Fax)

Emre Kesici (Contact Author)

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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