The Impact of Social Media on Venture Capital Financing: Evidence from Twitter Interactions

Abstract

We examine the impact of information acquisition through social media on venture capital (VC) investment structures. We find evidence that social media engagement volume can affect VC syndication and staging as well as probability of successful exit. Venture capitals (VCs) are less likely to stage finance and syndicate with each other when portfolio companies’ social media accounts are more active and have higher engagement volume with their followers. We collect a unique dataset from Twitter API and examine the impact of owned social media (OSM) and earned social media (ESM) on VC investment structures. Overall, our results show that entrepreneurial firms with higher OSM and ESM engagement volume are expected to have fewer financing rounds, a smaller number of members in their VC syndicates, a lower probability of VC syndication and a higher probability of an IPO exit. Our findings are robust to a variety of alternative model specifications, subsamples, controlling for endogeneity in VC syndication and staging, selection biases and machine learning approaches.