The Value of Privacy and the Choice of Limited Partners by Venture Capitalists

64 Pages Posted: 3 Oct 2022 Last revised: 22 Aug 2023

See all articles by Rustam Abuzov

Rustam Abuzov

University of Virginia - Darden School of Business

Will Gornall

University of British Columbia (UBC) - Sauder School of Business

Ilya A. Strebulaev

Stanford University - Graduate School of Business; National Bureau of Economic Research

Date Written: September 1, 2022

Abstract

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

Abuzov, Rustam and Gornall, Will and Strebulaev, Ilya A., The Value of Privacy and the Choice of Limited Partners by Venture Capitalists (September 1, 2022). Available at SSRN: https://ssrn.com/abstract=4235337 or http://dx.doi.org/10.2139/ssrn.4235337

Rustam Abuzov (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Will Gornall

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

HOME PAGE: http://willgornall.com

Ilya A. Strebulaev

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/ilya-strebulaev

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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