Mutual funds are acting like venture capitalists. Contrary to longstanding practice and to their reputation for investing in public companies, mutual funds, including some of the most prominent, are allocating portions of their portfolios to private startup firms, including famous unicorns like Airbnb and Uber. Through a case study of Fidelity Magellan Fund's startup portfolio, this article analyzes the regulatory implications of this development. I argue that the new interest in venture investing poses several potential investor-protection concerns: lack of awareness among mutual-fund investors, lack of liquidity for mutual-fund shares, lack of venture-capital (“VC”) expertise among mutual-fund management, and lack of accountability over how funds value their ownership stakes in startups for purposes of calculating their net asset values, which creates an opportunity for management to manipulate such estimates. Based on Magellan's practices, liquidity is not a salient concern, but the other gaps appear significant. Magellan's disclosures on its website, and in its prospectus, statement of additional information, and quarterly reports, provide investors with little meaningful information about the fund's investments in startups. They also provide nothing to suggest that Magellan has experience in this area. At the same time, however, the fund reports returns from its startup portfolio that far exceed the public market and the VC-industry average. While exceptional performance from a novice does not prove misconduct, it reinforces concerns about the dependability of fund valuations. To address the above risks, I suggest new rules governing how mutual funds value their startup investments, which tie changes to objective evidence, and new disclosure requirements that would shed light on the rationale for valuation changes and provide mutual-fund investors with notice that startups are in their portfolios and that these investments pose certain risks
