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

We study how information disclosure concerns shape the choice of limited partners by venture capital firms. Late-2002 court rulings created exogenous variation in public investors’ ability to provide confidentiality to private equity partnerships in their portfolios. The most successful, and typically oversubscribed, venture capital firms responded by excluding public institutions from their new funds, replacing them with domestic non-public investors, in particular funds of funds. The absence of performance data on top VC firms indicates that some affected limited partners agreed to limit the scope of reporting from VC firms to maintain relationships. The overall evidence highlights the relevance of confidentiality concerns when VCs select their investors.

Other authors: Rustam Abuzov and Ila Stregulaev