Dancing with You or Your Friends? The Dual Effects of Social Expansion and Cognitive Lock-in with Initial Investor on Entrepreneurial Firms’ Subsequent Investment Opportunities

Upon forming an investment-relationship with investors at early stage, entrepreneurial firms acquire various types of resources under the newly offered learning opportunities. However, little is known when and how the nascent ventures’ learning from their investmentrelationship helps them grow further, escalating their potentials and opportunities for future series of investments. In this paper, we propose that entrepreneurs that expand their attention along the social networks of their early investor (i.e., social-expansion learning) are more likely to secure their future investment by expanding the sources of vicarious learning, which signals ‘business expandability’ to the potential future investors. However, entrepreneurs that learn from the early investors’ cognitive horizon and give attention to similar topics result in lock-in to that investor, limiting opportunities to broaden their investor base. Matching with more than 43,000 deals from Pitchbook data and over 20,000 entrepreneurs-VC Tweeter dyads in the US, our difference-in-differences findings show that when CEOs engage with the initial investor’s contacts, they are more like to invite in their next round a) greater number of VCs, b) the greater deal size, and c) greater number of funding rounds in total. However, we found the opposite effects that, when CEOs show similar attention regarding topics and interests of their investors, they are less likely to secure the next round of investment. We conclude by discussing that entrepreneurs who are socially expansive exploring the connections of their initial funder’s networks– are more likely to successfully secure their next series of funding, whereas those who have ‘focus-mindset’ to their initial investor’s cognitive domain often can’t.