Mutual Funds As Venture Capitalists? Evidence from Unicorns

94 Pages Posted: 11 Jan 2017 Last revised: 28 Apr 2020

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); European Corporate Governance Institute (ECGI); Harvard University - Private Capital Research Institute

Yao Zeng

University of Pennsylvania - The Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: February 8, 2020

Abstract

The past decade saw the rise of both “founder-friendly” venture financings and non-traditional investors, frequently with liquidity constraints. Using detailed contract data, we study open-end mutual funds investing in private venture-backed firms. We posit an interaction between the classic agency problem between entrepreneurs and investors and the one between early-stage venture investors and liquidity-constrained later-stage ones. We find that mutual funds with more stable funding are more likely to invest in private firms, and that financing rounds with mutual fund participation have stronger redemption and IPO-related rights and less board representation, findings consistent with our conceptual framework.

Keywords: Private places, private equity, governance

JEL Classification: G24, G30, L26

Suggested Citation

Chernenko, Sergey and Lerner, Josh and Zeng, Yao, Mutual Funds As Venture Capitalists? Evidence from Unicorns (February 8, 2020). European Corporate Governance Institute – Finance Working Paper No. 675/2020, 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://www.sergeychernenko.com

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)

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Harvard University - Private Capital Research Institute ( email )

114 Western Ave
Allston, MA 02134
United States

Yao Zeng (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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