Mutual Funds as Venture Capitalists? Evidence from Unicorns

51 Pages Posted: 30 Oct 2017 Last revised: 23 Apr 2021

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 Pennsylvania - The Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

Abstract

Using novel contract-level data, we study the recent trend in open-end mutual funds investing in unicorns—highly valued, privately held start-ups—and the consequences of these investments for corporate governance provisions. Larger funds and those with more stable funding are more likely to invest in unicorns. Compared to venture capital groups (VCs), mutual funds have weaker cash flow rights and are less involved in terms of corporate governance, being particularly underrepresented on boards of directors. Having to carefully manage their own liquidity pushes mutual funds to require stronger redemption rights, suggesting contractual choices consistent with mutual funds’ short-term capital sources.

Suggested Citation

Chernenko, Sergey and Lerner, Josh and Zeng, Yao, Mutual Funds as Venture Capitalists? Evidence from Unicorns (October 2017). NBER Working Paper No. w23981, Available at SSRN: https://ssrn.com/abstract=3061673

Sergey Chernenko (Contact Author)

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

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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