The Impact of Public Pension Funds and Other Limited Partners on the Governance of Venture Capital Funds

33 Pages Posted: 18 Dec 2017 Last revised: 17 Jan 2018

See all articles by Vladimir A. Atanasov

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business

Thomas W. Hall

Christopher Newport University

Vladimir I. Ivanov

US Securities & Exchange Commission

Kate Litvak

Northwestern University - Pritzker School of Law

Date Written: December 16, 2017

Abstract

We examine whether the reinvestment choices of public pension funds affect the governance of venture capital funds. We start with a hand-collected dataset of litigation against venture capitalists (VCs) that provides significant shocks to the reputation of VCs. We combine that information with detailed data on limited partner investments in VCs provided by LP Source and test whether public pension funds respond differently to the litigation shocks compared to other types of limited partners. Our triple-difference framework reveals that VCs who were defendants in lawsuits suffer a significant subsequent decline in investment by university endowments, but experience an increase in the investment share of public pension funds. Pension funds are about three times more likely to re-invest in post-lawsuit funds offered by litigated VCs. The additional pension fund investments thus partially compensate for the shortfall in post-lawsuit fundraising caused by the exodus of other investors. Our results indicate that the investment choices of public pension fund managers reduce the effectiveness of monitoring efforts by other limited partners in venture capital funds.

Keywords: venture capital, litigation, limited partners, public pension funds, differences-in-differences

JEL Classification: G24, G33

Suggested Citation

Atanasov, Vladimir A. and Hall, Thomas William and Ivanov, Vladimir and Litvak, Kate, The Impact of Public Pension Funds and Other Limited Partners on the Governance of Venture Capital Funds (December 16, 2017). Northwestern Public Law Research Paper No. 17-32; Northwestern Law & Econ Research Paper No. 17-20. Available at SSRN: https://ssrn.com/abstract=3088998 or http://dx.doi.org/10.2139/ssrn.3088998

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Thomas William Hall (Contact Author)

Christopher Newport University ( email )

United States

Vladimir Ivanov

US Securities & Exchange Commission ( email )

Washington, DC
United States
202-551-5307 (Phone)

Kate Litvak

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

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