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The value of privacy and the choice of limited partners by venture capitalists

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  • Abuzov, Rustam
  • Gornall, Will
  • Strebulaev, Ilya A.

Abstract

We study how information disclosure concerns shape the choice of limited partners (LPs) by venture capitalists (VCs). Late-2002 court rulings prevented public LPs from providing confidentiality to investment managers. The best-performing VCs, but not other managers, responded by excluding public LPs from their new funds. Lost access reduced public LP returns by $1.6 billion relative to $14 billion of their VC commitments. Legislation reducing disclosure, contracts limiting information access, and added fund-of-funds intermediaries helped restore access. These changes focused on protecting portfolio company information, highlighting the importance of proprietary information for VC investing and the potential costs of transparency.

Suggested Citation

  • Abuzov, Rustam & Gornall, Will & Strebulaev, Ilya A., 2025. "The value of privacy and the choice of limited partners by venture capitalists," Journal of Financial Economics, Elsevier, vol. 169(C).
    • Handle: RePEc:eee:jfinec:v:169:y:2025:i:c:s0304405x25000716
    DOI: 10.1016/j.jfineco.2025.104063
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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