12-15-2025
Institutional investors have long recognized the allure of venture capital (VC): the opportunity to gain early access to transformative technologies and disruptive startups before they hit the mainstream. But new research suggests the benefits of VC participation extend far beyond the private market. In fact, by channeling the information they gain through their venture capital investments, institutional investors are earning excess returns in publicly traded equities as well.
In their paper “Transmission of Information from Private to Public Markets,” the Daniels School’s Hanna Rising Star Professor Deniz Yavuz and Burton D. Morgan Chair of Private Enterprise Emeritus John McConnell, along with coauthors Shrijata Chattopadhyay from Binghamton University and Timothy Trombley from Illinois State University, explore this underappreciated link between venture capital and public market performance.
Their research shows that the informational spillovers from private investments help institutions anticipate which public firms will benefit — or suffer — from new technological shifts. For institutional investors and asset managers, the findings underscore a crucial takeaway: Tracking venture activity can be a powerful early-warning system for public market trends.
Institutional investors often face strict regulations against trading on insider information. Yet through their VC commitments, they gain something entirely legal but similarly valuable: insider-like insights about emerging industries, technologies and competitive dynamics.
When large institutional investors — such as pension funds, endowments or sovereign wealth funds — invest in venture capital funds, they receive regular updates about portfolio companies, product pipelines, market traction and partnership activity. These reports, while not public, offer a window into what’s next in innovation.
The study finds that institutions leverage this information advantage in their public market trading, adjusting their portfolios to overweight firms likely to benefit from new technologies and underweight those that may be disrupted. The result is measurable outperformance in public equities, even after accounting for risk factors and other known return drivers.
One of the study’s most striking conclusions is that the total benefit from VC investing extends beyond the direct financial returns from venture funds themselves.
While venture capital returns are often skewed and illiquid — dependent on a few “home run” startups that take years to exit — the informational dividends can start paying off immediately. Institutional investors participating in VC funds effectively tap into an innovation network that continually produces market-relevant intelligence.
For example, by gaining exposure to emerging trends in artificial intelligence, renewable energy or biotechnology through their VC partnerships, institutions can better assess which publicly listed firms are poised to gain competitive advantage. Conversely, they can avoid or short firms likely to be displaced by the new technologies.
This ability to connect the dots between private innovation and public impact represents a unique and durable edge in portfolio management, one that purely public-market investors often lack.
The research offers several clear, actionable takeaways for institutional investors and asset managers seeking to translate these findings into practice:
Traditional portfolio construction views VC allocations mainly as high-risk, high-reward private equity plays. But this study reframes VC commitments as dual-purpose assets — generating both financial and informational returns.
Institutions can formalize the learning process by integrating insights from VC fund managers into their public equity research teams. Structured knowledge-sharing — through joint committees, innovation briefings or shared data platforms — can help ensure valuable observations from the private side inform public portfolio strategies.
Even for investors without direct VC exposure, monitoring venture activity offers predictive signals about future public market movements.
Asset managers can systematically analyze where venture capital is flowing — such as surges in quantum computing, sustainable materials or digital health — to anticipate which publicly listed suppliers, partners or competitors stand to gain. By mapping the “innovation ecosystem,” managers can identify early beneficiaries of disruptive trends and position their portfolios accordingly.
Innovation cuts both ways. The rise of new technologies can create winners and losers across public markets. Institutions can use venture trend data to de-risk portfolios by trimming exposure to sectors or firms vulnerable to disruption.
For example, rising venture investment in electric mobility or battery technology could signal long-term headwinds for traditional automotive or oil companies. Proactive rebalancing in response to these signals can help mitigate drawdowns before they appear in financial statements or analyst forecasts.
To fully capture these benefits, institutions should break down silos between their private equity, venture, and public market teams. Coordinated investment processes — where venture insights feed into public-market decision-making — can help institutions act on innovation signals faster than competitors.
This organizational integration also creates a feedback loop. Public equity analysts can flag public firms of strategic interest to VC partners, enhancing deal sourcing and thematic focus on both sides.
The findings highlight a subtle but growing information asymmetry between institutional and retail investors. Large institutions not only gain access to early-stage innovations through VC, but they also use those insights to amplify returns in public markets.
As more institutions recognize and exploit these connections, the informational link between private and public markets could strengthen further, making venture ecosystems an increasingly important driver of public equity performance. For regulators and market participants, this raises important questions about fairness and market efficiency; for investors, it represents a strategic opportunity.
For asset managers and investors alike, the takeaway is clear: The future of VC lies at the intersection of private innovation and public insight. Tracking where venture money moves today may well reveal where public-market value will emerge tomorrow.
