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 mutual fund investment 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 appear to have weaker cash flow rights and to be 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 and eschew “pay-to-play” provisions, suggesting contractual choices consistent with mutual funds’ short-term capital sources.
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