The impact of social media on venture capital financing: evidence from Twitter interactions

• Published in: Review of quantitative finance and accounting 2024, Vol.62 (1), p.195-224
• Main Authors: Bayar, Onur, Kesici, Emre
• Format: Article
• Language: English
• Subjects: Accounting/Auditing; Companies; Corporate Finance; Econometrics; Economics and Finance; Finance; Financing; Operations Research/Decision Theory; Original Research; Social media; Social networks; Startups; Syndicates; Venture capital
• ISSN: 0924-865X; 1573-7179
• DOI: 10.1007/s11156-023-01199-4

This paper examines how information acquisition through social media affects venture capital (VC) investments into entrepreneurial startup firms. We collect a unique data set from Twitter API to measure the impact of owned social media (OSM) and earned social media (ESM) of portfolio companies on the structure of VC investments they receive. We find evidence consistent with the hypothesis that startup firms’ social media engagement affects the staging of VC financing, the VC syndicate structure, and the probability of a successful exit. When a portfolio company’s social media accounts are more active and the company has a higher engagement volume with its followers, VC firms reduce the extent of stage financing and are less likely to syndicate with each other in financing such a portfolio company. Overall, our results demonstrate that entrepreneurial firms with higher OSM and ESM engagement volume have fewer VC financing rounds, a smaller number of VCs in their VC syndicates, a lower probability of VC syndication, a higher successful exit probability, and a higher amount total funding across all rounds.