Mutual Funds As Venture Capitalists? Evidence from Unicorns

70 Pages Posted: 11 Jan 2017 Last revised: 21 Dec 2018

See all articles by Sergey Chernenko

Sergey Chernenko

Purdue University - Department of Management

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Yao Zeng

University of Washington - Michael G. Foster School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2018

Abstract

Using novel contract-level data, we study open-end mutual funds investing in unicorns — highly valued, privately held start-ups — and their association with corporate governance provisions. Larger funds and those with more stable funding are more likely to invest in unicorns. Both mutual fund participation and the mutual fund share of the financing round are strongly correlated with the round’s contractual provisions. Compared to venture capital groups, mutual funds are underrepresented on boards of directors, suggesting less direct monitoring. However, rounds with mutual fund participation have stronger redemption and IPO-related rights, consistent with mutual funds’ liquidity needs and vulnerability to down-valuation IPOs.

Suggested Citation

Chernenko, Sergey and Lerner, Josh and Zeng, Yao, Mutual Funds As Venture Capitalists? Evidence from Unicorns (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=2897254 or http://dx.doi.org/10.2139/ssrn.2897254

Sergey Chernenko

Purdue University - Department of Management ( email )

West Lafayette, IN 47907-1310
United States
(765) 494-4413 (Phone)

HOME PAGE: http://https://sites.google.com/site/chernenkosergey/

Josh Lerner

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yao Zeng (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

HOME PAGE: http://sites.google.com/site/yaozengwebsite/

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