Job market Paper
The Effect of Syndication on Performance Manipulation in the Venture Capital Industry.
Venture capital fund performance measures are manipulable. This paper examines the effect of syndication among venture capital (VC) funds on the funds' incentives to manipulate their performance measures. I show that the presence of new syndicate partners reduces misreporting by VC funds: (i) by reducing the opacity regarding funds' portfolio-company valuations and (ii) through common limited partners (LPs) who can observe discrepancies in portfolio-company valuations reported by syndicate partners. The effect is especially important during the follow-on fundraising period. To identify that syndicate partners reduce performance misreporting I use availability-of-syndicate-partners as an instrument for the number of new syndicate partners. The implications of my findings are that LPs should better monitor VC funds with fewer new syndicate partners and regulators should consider the presence of peer-monitoring among VC funds before imposing disclosure requirements.
Media coverage: How Adding VC Investors Can Make Valuations More Accurate | Institutional Investor
Venture capital fund performance measures are manipulable. This paper examines the effect of syndication among venture capital (VC) funds on the funds' incentives to manipulate their performance measures. I show that the presence of new syndicate partners reduces misreporting by VC funds: (i) by reducing the opacity regarding funds' portfolio-company valuations and (ii) through common limited partners (LPs) who can observe discrepancies in portfolio-company valuations reported by syndicate partners. The effect is especially important during the follow-on fundraising period. To identify that syndicate partners reduce performance misreporting I use availability-of-syndicate-partners as an instrument for the number of new syndicate partners. The implications of my findings are that LPs should better monitor VC funds with fewer new syndicate partners and regulators should consider the presence of peer-monitoring among VC funds before imposing disclosure requirements.
Media coverage: How Adding VC Investors Can Make Valuations More Accurate | Institutional Investor
Working Papers
Transmission of Information from Private to Public Markets. (with John J. McConnell, Timothy E. Trombley, and M. Deniz Yavuz)
We report evidence consistent with institutional investors using industry-level information that they obtain from their investments in venture capital (VC) funds to earn excess returns in publicly-traded equities. We use court rulings regarding the Freedom of Information Act as an exogenous shock affecting the information flow between VC firms and institutional investors to show that the excess returns are explained by information received via this channel. Thus, institutional investors serve as conduits of information, making publicly-traded stock prices more efficient and, in the process, earning higher returns from their VC investments than implied by the cash flows thereby received.
Presented at Southern California Private Equity Conference (2022), Craig W. Holden Memorial Conference (2022), Purdue Alumni Early Stage VC Symposium (2022), Chicago Entrepreneurship Workshop (Summer 2022)
Media coverage: Why Private Market Returns May Be Far Greater Than They Seem on Paper | Institutional Investor
Work in Progress
University Innovation. (with Kate Holland and Ben McCartney)