Mom and Pop Are Buying ‘Unicorns’

16th Century Unicorn Cup, British Museum

Our younger daughter loves Blue Apron, the online provider of recipes and ingredients that equip you to prepare restaurant-style dinners at home. Fidelity must love Blue Apron, too. The mutual fund giant is reportedly buying shares of the pseudo-private company at a price that puts Blue Apron's value at $2 billion.

Back when our daughter was born, the line between privately-held companies and those with publicly-traded shares seemed bright. A mutual fund would not have bought shares in a private company like Blue Apron. And even if it had wanted to, few start-ups were thought to be worth billions.

Today, writes Andrew Ross Sorkin at Dealbook, shares in high-value tech startups – known as "unicorns" – are finding their way into mutual funds that mom and pop can buy. Indeed, Sorkin points out, mutual fund investors may own a unicorn or two without knowing the creatures are hiding in their funds' portfolios.

Sorkin worries that the market value of unicorn shares is a matter of opinion, rather than being determined by an active stock market.

It’s virtually impossible to know exactly how the mutual funds determine the value of private companies. Not one of the mutual fund companies with which I spoke was willing to fully explain its methodology.

Fortunately, Sorkin points out, even when unicorns are held in a fund, they represent a small fraction of the fund's holding. "So if you’re an investor looking for a lot of exposure to unicorn technology companies, these mutual funds are hardly going to give you a concentrated bet. And that’s probably a good thing."