An initial public offering (IPO) can have diverse impacts on incumbent firms. We identify a valuation channel using a pairwise measure of technological proximity between the new entrant and incumbent firms. By analyzing the patent data of firms listed on the Shanghai Stock Exchange’s STAR Board, we find a significant increase in the valuation of the incumbent firm when its patent portfolio exhibits a higher degree of similarity to the IPO firm. This positive spillover effect differs from other well-documented peer effects of IPO shocks, suggesting a novel mechanism that operates through technological linkages, particularly among technology-intensive firms.