Learning by Investing: Evidence from Venture Capital

Morten Sorensen ()
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Morten Sorensen: University of Chicago GSB

No 53, SIFR Research Report Series from Institute for Financial Research

Abstract: To understand the investment behavior of venture capital (VC) investors, this paper estimates a dynamic model of learning. Behavior reflecting both learning from past investments (exploitation) and anticipated future learning (exploration) are found to be prevalent, and the model's additional predictions about success rates and investment speeds are confirmed empirically. Learning is important, since it can create informational frictions, and it has potential implications for VCs' investments and organizations. VCs are found to internalize the value of learning, and this may help promote exploration beyond the levels sustained in standard capital markets, which is socially valuable.

Keywords: Venture capital; Learning; Multi-armed bandit model (search for similar items in EconPapers)
JEL-codes: D49 D83 G31 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2007-05-15
New Economics Papers: this item is included in nep-bec, nep-cbe and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sifrwp:0053

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