Private Company Valuations by Mutual Funds
57 Pages Posted: 8 Nov 2017 Last revised: 5 Sep 2019
Date Written: August 22, 2019
Mutual funds that hold private securities value these securities at considerably different prices. Prices vary across fund families, are updated every 2.5 quarters on average and are revised dramatically at follow-on funding events. The infrequent, but dramatic price changes yield predictable fund returns, though we find little evidence of fund investors exploiting this opportunity by buying (selling) before (after) the follow-on funding events. Consistent with fund families opportunistically marking up private securities, we find that funds near the top of league tables increase private valuations more around year-end follow-on funding events than funds ranked lower.
Keywords: Mutual funds, Venture capital, Entrepreneurial firm, Private valuation, Stale prices
JEL Classification: G23, G24, G32, M13
Suggested Citation: Suggested Citation