NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Mutual Funds as Venture Capitalists? Evidence from Unicorns

Sergey Chernenko, Josh Lerner, Yao Zeng

NBER Working Paper No. 23981
Issued in October 2017
NBER Program(s):The Productivity, Innovation, and Entrepreneurship Program

Using novel contract-level data, we study the recent trend in open-end mutual funds investing in unicorns—highly valued, privately held start-ups—and the consequences of these investments for corporate governance provisions. Larger funds and those with more stable funding are more likely to invest in unicorns. Compared to venture capital groups (VCs), mutual funds have weaker cash flow rights and are less involved in terms of corporate governance, being particularly underrepresented on boards of directors. Having to carefully manage their own liquidity pushes mutual funds to require stronger redemption rights, suggesting contractual choices consistent with mutual funds’ short-term capital sources.

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Document Object Identifier (DOI): 10.3386/w23981

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