Measuring Investor Learning in Private Markets: A Sequential LLM-Bayesian Analysis of Expert Network Calls

TL;DR

This paper introduces a novel LLM-Bayesian framework to quantify investor learning from expert calls in private markets, revealing how qualitative signals influence investment decisions and portfolio performance.

Contribution

It develops a sequential LLM-Bayesian method to extract time-varying beliefs from unstructured conversations, advancing measurement of qualitative information in private market investments.

Findings

Expert calls increase investment probability by 6.9-9.0 percentage points.

Positive sentiment raises deal likelihood by 3.9-4.1 percentage points.

Framework improves portfolio returns by 15.26% and F1 score by 6.69%.

Abstract

We study investor learning and information acquisition in private markets using a large dataset of expert network calls. We develop a sequential Large Language Model (LLM)-Bayesian framework that treats expert interactions as sequential signals and recovers time-varying beliefs about firm success and associated uncertainty from unstructured conversations, providing a measurement system for how qualitative information is aggregated into investment expectations. We show that expert network calls contain decision-relevant information: a single call increases subsequent investment probability by 6.9 to 9.0 percentage points, while positive sentiment raises deal likelihood by 3.9 to 4.1 percentage points. Informativeness varies across topics and environments: discussions of technology adoption and customer acquisition increase deal probability by up to 14.7 percentage points, particularly in high-uncertainty settings. Information is asymmetric across horizons, with positive signals predicting short-term investment decisions and negative signals more informative about long-run firm performance. Consistent with a belief-based mechanism, investment decisions respond to inferred beliefs rather than raw signals. A one standard deviation increase in success belief raises deal probability by approximately 11 percentage points, while reductions in uncertainty further increase investment likelihood. Our framework improves capital allocation, increasing portfolio returns by 15.26% and F1 by 6.69%, with gains concentrated in the upper tail. Attention and ablation analyses show that conversational cues are particularly informative for technologically complex startups, young firms, diverse founding teams, and firms with low public visibility, where information frictions are severe.