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

Abstract

This paper documents how information disclosure concerns shape the choice of limited partners by venture capital firms. Late-2002 court rulings forced public pension plans and public university endowments to disclose fund performance information. The most successful, and typically oversubscribed, venture capital firms responded by excluding public institutions from their new funds, replacing them with domestic nonpublic and foreign investors. Public investors reallocated to less successful and younger VC firms, while some of the affected limited partners agreed to limit the scope of disclosure from VC firms. We find no evidence that these changes were driven by the unwillingness to disclose poor technology bubble returns.

Authors

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