Working Paper: NBER ID: w23981
Authors: Sergey Chernenko; Josh Lerner; Yao Zeng
Abstract: 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.
Keywords: mutual funds; unicorns; venture capital; corporate governance
JEL Codes: G23; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Larger mutual funds and those with stable funding (G23) | Increased participation in late-stage financing rounds (G24) |
| Mutual fund participation (G23) | Weaker cash flow rights and control rights (G39) |
| Mutual fund participation (G23) | Stronger redemption rights (P14) |
| Mutual fund investments (G23) | Governance structure of unicorn investments (G30) |