Mutual Funds As Venture Capitalists? Evidence from Unicorns
70 Pages Posted: 11 Jan 2017 Last revised: 21 Dec 2018
Date Written: December 20, 2018
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.
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