Feeling inspired? The LP-to-founder track is more common than one might expect
While venture capital (VC) has long been recognized as playing an important role in scaling innovative startups and developing broader entrepreneurial ecosystems, the mechanisms through which this occurs have been less well documented. A new study sheds light on one such mechanism: how exposure to VC investment may help develop not just entrepreneurial firms and ecosystems, but entrepreneurs themselves. In other words, VC investment may not only finance innovation; it may also help foster and equip a new generation of entrepreneurs.
A recent study by Harvard Business School Professor and Bella Managing Partner Josh Lerner and his coauthors, Jinlin Li of China Securities Regulatory Commission and Peking University and Tong Liu of MIT’s Sloan School (2025), explores this idea by examining how exposure to VC investing can influence the behavior and outcomes of individual investors themselves. Their findings suggest that individuals who invest in successful venture funds are significantly more likely to go on to start companies of their own than those who invest in failed funds. In other words, VC may function not only as a financial intermediary but also as a mechanism through which entrepreneurial knowledge spreads.
For those active in private markets, this finding highlights an often-overlooked aspect of venture ecosystems: how information and innovation resources circulate among participants, often generating unexpected spillover effects for the investors themselves.
Venture capital as a learning environment
The value of exposure has long been understood and appreciated. Entrepreneurs often emerge from environments where innovation is already taking place and where an entrepreneurial tradition has already been established. Observing how businesses are built, funded, and scaled can significantly motivate an individual’s willingness and ability to launch a venture. VC investing may represent one of these environments.
Investors in venture funds are often given a front-row view of the startup process and all its related trials and tribulations. While limited partners do not directly manage portfolio companies, they are still exposed to how general partners work: sector analysis, due diligence, and post-investment governance. Through regular, structured interactions with GPs, investors can gain insight into how entrepreneurial opportunities are identified, evaluated, and supported.
Over time, this exposure appears to translate into measurable entrepreneurial outcomes.
Evidence from venture investors
To study how being an LP in a VC fund predicts an individual’s subsequent entrepreneurial activity, the researchers construct a novel dataset combining Chinese administrative business registry data with VC fundraising and investment records, covering the period 1999 to 2018. The dataset includes the entirety of firm creation activity in China, including shareholder records, and tracks 57,328 individual LPs across 18,867 venture funds, linking them to comprehensive records of firm creation, patents, and hiring.
For the study, the authors identify and focus on individual LPs, specifically investors who commit personal capital to VC funds and do not actively manage them, as opposed to managers from large institutional LPs who co-invest in VC (e.g., pensions or endowments). These individual investors often include existing entrepreneurs, executives, and high-net-worth individuals who participate in VC as part of their investment portfolios.
In solving the question, an important problem that is addressed is endogeneity—it may be that individuals who are more interested in entrepreneurship are more likely to invest in VC, making a correlation between LP venture investment and future entrepreneurial activity misleading. The authors address this in two ways.
First, they exploit a useful feature of VC fundraising: not all funds that attempt to raise capital successfully launch. By comparing individuals who committed to funds that successfully launched (where the LPs actually gained exposure) with those whose funds failed to launch, the study isolates the effect of the actual exposure to VC investing.
Second, to rule out the possibility of LP composition being in any way determinative of fund launch success, they employ an instrumental variable (IV)—a variable that proxies for fund launch but that is unrelated to individual LP’s entrepreneurial potential. For this IV, they use the share of a fund’s committed capital coming from an anchor corporate LP that experiences financial distress in the months leading to the fund’s regulatory approval. When a large anchor investor is financially distressed, it tends to default on its capital commitment, often prompting the fund to fail to launch.
A measurable increase in venture creation
The IV regression results show that investing in a successfully launched VC fund prompts individual LPs to start just over one additional venture over the following three years, relative to LPs in funds that never launched.
While this increase may appear modest at the individual level, the aggregate implications are substantial. As more individuals participate in venture ecosystems, the number of potential founders increases as well.
This finding suggests that VC ecosystems may be quietly expanding the pool of entrepreneurial talent.
Not just more startups—different ones
Importantly, the companies created by these investors are not simply small lifestyle businesses. The ventures created after gaining VC exposure are meaningfully different from those the same individuals started beforehand.
The research finds that ventures launched after investors gain exposure to VC are more likely to exhibit characteristics associated with high-growth startups. In particular, these new ventures are disproportionately concentrated in high-technology sectors, at 29.9% versus only 18.8% of ventures created by the same LPs prior to their venture experience.
The new ventures created by LPs in successfully launched funds file roughly 87.7% more patents within two years of founding and post 31.5% more job listings than old ventures started by the same LPs, relative to ventures founded by LPs in failed-to-launch funds.
This shift suggests that exposure to venture not only increases the likelihood of entrepreneurship but also influences the types of opportunities entrepreneurs pursue. Investors appear to internalize the VC mindset—focusing on scalable technologies and large market opportunities.
Learning from the venture ecosystem
Why does venture investing generate these effects?
The research strongly supports a learning channel, as opposed to either a financial or networking channel. New ventures created after LP exposure share greater similarity in industry and patent classifications with the portfolio companies of the funds their founders invested in. This pattern suggests that investors are not simply starting more companies but that they are starting companies that reflect what they have learned from watching VCs evaluate and support startups.
This learning effect is also stronger in contexts where “more” learning would be expected. LPs who invest alongside more experienced GPs—those with more prior deals, higher exit rates, or longer operating histories—show meaningfully larger increases in their venture creation. Similarly, first-time LPs appear to benefit more than veteran ones, consistent with diminishing returns to repeated exposure.
Broader Implications
These findings illustrate a spillover effect that extends beyond the startups VC directly funds. By exposing investors to entrepreneurial processes, sector knowledge, and emerging technologies, VC appears to expand the pool of individuals capable of launching new ventures—a form of human capital spillover that has received little attention in prior research.
For individuals allocating capital to venture funds, this suggests an often-overlooked dimension of VC investing. Beyond financial returns, participation in venture ecosystems confers genuine informational value. The paper challenges the traditional view of LPs as purely “passive” capital providers, arguing instead that the LP-GP relationship can represent a meaningful channel through which high-net-worth individuals learn about entrepreneurial opportunities and shift toward more innovative sectors—a dynamic the authors suggest extends well beyond China to any market where GPs actively engage their investors.
For GPs, this dynamic also presents a compelling value proposition to market to prospective LPs: participation in a VC fund offers not just financial upside, but a proven opportunity to develop entrepreneurial knowledge and capabilities that can extend well beyond an investment itself.
Reference
Lerner, Josh, Jinlin Li, and Tong Liu. “Learning by Investing: Entrepreneurial Spillovers from Venture Capital.” NBER Working Paper No. 31897, December 2025 (originally issued November 2023). http://www.nber.org/papers/w31897.
