The shortage of information about private technology companies and their tiny trading volumes are creating daunting valuation hurdles for fund managers.
The differences are a sign of growing danger for individual investors as mutual funds scramble to buy shares in new tech companies before they go public. While getting in early gives those mutual funds a shot at a huge profit if a company takes off, which happened with Facebook Inc. and LinkedIn Corp., many funds struggle just to put a value on their private-company shares. In the stock market, prices rise and fall every day in response to company announcements, economic news and jostling by droves of investors. Private companies rarely talk in detail or disclose financial information, leaving their investors in the dark and on their own to decide how much a stock is worth.