Can Large Language Models Improve Venture Capital Exit Timing After IPO?

ArXiv ID: 2601.00810 “View on arXiv”

Authors: Mohammadhossien Rashidi

Abstract

Exit timing after an IPO is one of the most consequential decisions for venture capital (VC) investors, yet existing research focuses mainly on describing when VCs exit rather than evaluating whether those choices are economically optimal. Meanwhile, large language models (LLMs) have shown promise in synthesizing complex financial data and textual information but have not been applied to post-IPO exit decisions. This study introduces a framework that uses LLMs to estimate the optimal time for VC exit by analyzing monthly post IPO information financial performance, filings, news, and market signals and recommending whether to sell or continue holding. We compare these LLM generated recommendations with the actual exit dates observed for VCs and compute the return differences between the two strategies. By quantifying gains or losses associated with following the LLM, this study provides evidence on whether AI-driven guidance can improve exit timing and complements traditional hazard and real-options models in venture capital research.

Keywords: Venture Capital, IPO Exit Strategy, Large Language Models (LLM), Real Options, Financial NLP, Private Equity/Venture Capital

Complexity vs Empirical Score

  • Math Complexity: 2.5/10
  • Empirical Rigor: 8.5/10
  • Quadrant: Street Traders
  • Why: The paper is highly data-driven with extensive data collection, manual filing analysis, and a structured LLM evaluation framework, but the mathematics is relatively light, relying mostly on established hazard models and real-options concepts without dense derivations or novel formulae.
  flowchart TD
    A["Research Goal<br>Can LLMs improve<br>VC exit timing after IPO?"] --> B["Methodology: LLM Framework"]
    B --> C{"Data Inputs"}
    C --> D["Post-IPO Financials & Filings"]
    C --> E["Market Signals & News"]
    
    D --> F["LLM Analysis & Recommendation"]
    E --> F
    
    F --> G["Comparison & Evaluation"]
    G --> H["LLM vs. Actual Exit Returns"]
    
    H --> I["Key Findings"]
    I --> J["LLM shows potential<br>to optimize exit timing"]
    I --> K["Complements traditional<br>hazard/real-options models"]