The Value of Privacy and the Choice of Limited Partners by Venture Capitalists
64 Pages Posted: 3 Oct 2022 Last revised: 22 Aug 2023
Date Written: September 1, 2022
We study how information disclosure concerns shape the choice of limited partners by venture capital firms. Late-2002 court rulings stopped public investors from providing confidentiality to private equity firms. The best-performing venture capital firms, but not other firms, responded by excluding public investors from their new funds. We argue that this effect is caused by excess investor demand resulting from an inability to scale the VC model. To preserve relationships, many public investors agreed to receive less information: rules forcing disclosure by principals led agents to hide information from their principals.
Keywords: limited partners, FOIA, venture capital, public pensions
JEL Classification: G11, G24, O31
Suggested Citation: Suggested Citation