May 2021
Article
Review of Financial Studies

Mutual Funds as Venture Capitalists? Evidence from Unicorns

By: Josh Lerner, Sergey Chernenko and Yao Zeng

Format:Print

Abstract

The past decade saw the rise of both “founder-friendly” venture financings and non-traditional investors, frequently with liquidity constraints. Using detailed contract data, we study open-end mutual funds investing in private venture-backed firms. We posit an interaction between the classic agency problem between entrepreneurs and investors and the one between early-stage venture investors and liquidity-constrained later-stage ones. We find that mutual funds with more stable funding are more likely to invest in private firms, and that financing rounds with mutual fund participation have stronger redemption and IPO-related rights and less board representation, findings consistent with our conceptual framework.

Keywords

Investment Funds; Investment; Business Startups; Venture Capital; Private Equity; Governance

Citation

Lerner, Josh, Sergey Chernenko, and Yao Zeng. "Mutual Funds as Venture Capitalists? Evidence from Unicorns." Review of Financial Studies 34, no. 5 (May 2021): 2362–2410.