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Learning by Investing: Evidence from Venture Capital

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Author Info
Sorensen, Morten () (University of Chicago GSB)
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.

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Publisher Info
Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 53.

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Length: 52 pages
Date of creation: 15 May 2007
Date of revision:
Handle: RePEc:hhs:sifrwp:0053

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Related research
Keywords: Venture capital; Learning; Multi-armed bandit model;

Find related papers by JEL classification:
D49 - Microeconomics - - Market Structure and Pricing - - - Other
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy

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