Do portfolio companies learn from their peers? Evidence from venture capital funding

We investigate the impact of ‘learning from peers’ on the fundraising abilities of start-up companies. Employing data on the financing rounds of privately owned portfolio companies, we find that companies observe the round amounts of their most successful peers and learn to negotiate higher round amounts with venture capital investors. We further show that the number of common directors or venture capital firms between portfolio companies and their most successful peers has a positive impact on the round amounts of these portfolio companies, which supports the existence of conversational learning. Moreover, observational learning from peers is higher in hot markets, where investors rely on less costly information on peers. Our findings confirm that both observational and conversational learning allow portfolio companies to be in a better negotiating position, thus enhancing their ability to secure funding and invest in their growth.