Learning by Investing: Entrepreneurial Spillovers from Venture Capital

Saturday October 1, 2022


This paper studies how investing in venture capital (VC) affects the entrepreneurial outcomes of individual limited partners (LPs). Using comprehensive administrative data on entrepreneurial activities and VC fundraising and investments in China, we first document that individual LPs, on average, contribute about 50% of capital of each fund in which they participate, and over 50% of them are entrepreneurs. We then exploit an identification strategy by comparing the entrepreneurial outcomes of individual LPs in funds that eventually launched with those in funds that failed to launch. The fraction of committed capital from corporate LPs in industries that subsequently encounter poor returns is used as an instrument for funds’ launch failures. We find that after investing in a VC fund, individual LPs create significantly more ventures. These new ventures tend to be high-tech firms and file more patents. We find evidence consistent with venture investments being a channel through which individual LPs learn


Josh Lerner, Harvard Business School and NBER
Jinlin Li, Harvard Business School
Tong Liu, MIT Sloan School of Management