Private Company Valuations by Mutual Funds

51 Pages Posted: 8 Nov 2017 Last revised: 20 Feb 2021

See all articles by Vikas Agarwal

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Brad M. Barber

University of California, Davis

Si Cheng

Chinese University of Hong Kong - Department of Finance

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

Ayako Yasuda

University of California, Davis - Graduate School of Management

Date Written: February 18, 2021

Abstract

Mutual funds value private security holdings at considerably different prices, update valuations infrequently, and revise valuations dramatically at follow-on funding events. Predictable private valuation changes at follow-on rounds yield predictable fund returns, but effects are muted for large families, families with large investment in the private security, and families with large percentage stakes in funding rounds. Mutual funds with high exposure to private securities have outflows that are more sensitive to poor fund performance when the venture capital market also performs poorly. The results have welfare implications for retail investors interested in accessing private startups via investments in mutual funds.

Keywords: Mutual funds, Venture capital, Private valuation, Stale prices, Financial fragility

JEL Classification: G23, G24, G32, M13

Suggested Citation

Agarwal, Vikas and Barber, Brad M. and Cheng, Si and Hameed, Allaudeen and Yasuda, Ayako, Private Company Valuations by Mutual Funds (February 18, 2021). Available at SSRN: https://ssrn.com/abstract=3066449 or http://dx.doi.org/10.2139/ssrn.3066449

Vikas Agarwal

Georgia State University ( email )

35 Broad Street,
Suite 1221
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www.gsu.edu/~fncvaa

University of Cologne - Centre for Financial Research (CFR)

Albertus-Magnus Platz
Cologne, 50923
Germany

Brad M. Barber

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Si Cheng

Chinese University of Hong Kong - Department of Finance ( email )

12/F, Cheng Yu Tung Building
No.12, Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/cheng-si/

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu.sg/faculty-details/?profId=1

Ayako Yasuda (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-0775 (Phone)
530-752-2924 (Fax)

HOME PAGE: http://www.ayakoyasuda.com

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