How Does Active Involvement Benefit Investors? Evidence from 85 Billion Cell Phone Signals

Abstract

I investigate the reputation effects of active involvement, specifically examining how venture capitalists’ (VCs’) on-site meetings with portfolio companies affect VCs’ reputations and future deal flow. By analyzing cell phone signals collected around VC and startup office buildings from 2018 to 2023, I measure VCs’ involvement intensity and deal flow quality. Using exogenous variation in travel ease, I show that increased VC involvement leads them to receive better online reviews from entrepreneurs, attracting more and higher-quality new entrepreneurs to pitch, ultimately improving future investment outcomes. Furthermore, I document six stylized facts about VC involvement: (1) VCs visit underperforming portfolio companies more frequently; (2) the frequency of visits increases when portfolio companies are closer; (3) early-stage investments receive more frequent visits; (4) VCs and nontraditional investors (CVCs, PEs, hedge funds) visit at similar frequencies, while accelerators and incubators visit more often; (5) deals with more co-investors involve more overall visits, but each investor visits less frequently; and (6) larger VCs visit less frequently per deal.

Keywords: Venture Capital, Reputation, Active Involvement, Deal Flow

JEL Classification: G24