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How Fundamental are Fundamental Values? Valuation Methods and their Impact on the Performance of German Venture Capitalists

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Author Info

  • Ingolf Dittmann
  • Ernst Maug
  • Johannes Kemper

Abstract

"This paper studies how the use of alternative valuation methodologies affects investment performance for a sample of 53 German venture capitalists. We measure investment performance by the amount of investments they need to write off and by the number of companies they take public. We find that a significant number of investment managers use discounted cash flow (DCF) techniques, but only a minority appears to use a discount rate related to the cost of capital. The majority applies DCF using subjective discount rates. We present evidence that the use of DCF is correlated with superior investment performance only if applied in conjunction with an objectifiable discount rate. Also, funds that invest with a longer horizon perform better. The use of multiples is not significantly correlated with investment performance. We conclude that a focus on fundamental values confers an advantage". Copyright Blackwell Publishers Ltd, 2004.

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Bibliographic Info

Article provided by European Financial Management Association in its journal European Financial Management.

Volume (Year): 10 (2004)
Issue (Month): 4 ()
Pages: 609-638

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Handle: RePEc:bla:eufman:v:10:y:2004:i:4:p:609-638

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Cited by:
  1. Sherrill Shaffer, 2008. "Earnings Valuation And Sources Of Growth," CAMA Working Papers 2008-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. M. Knockaert & D. Ucbasaran & M. Wright & B. Clarysse, 2009. "How does Tacit Knowledge Transfer Influence Innovation Speed? The Case of Science Based Entrepreneurial Firms," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/554, Ghent University, Faculty of Economics and Business Administration.
  3. Tarek Miloud & Arild Aspelund & Mathieu Cabrol, 2012. "Startup valuation by venture capitalists: an empirical study," Post-Print hal-00951664, HAL.
  4. Block, Joern H. & De Vries, Geertjan & Schumann, Jan H. & Sandner, Philipp, 2014. "Trademarks and venture capital valuation," Journal of Business Venturing, Elsevier, vol. 29(4), pages 525-542.
  5. Richard B. Carter & Howard Van Auken, 2007. "Capital Acquisition Attitudes: Gender and Experience," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 12(2), pages 55-74, Fall.
  6. Erik E. Lehmann, 2004. "Does Venture Capital Syndication Spur Employment Growth and Shareholder Value? Evidence from German IPO Data," Papers on Entrepreneurship, Growth and Public Policy 2004-21, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  7. Ingolf Dittmann & Christian Weiner, 2005. "Selecting Comparables for the Valuation of European Firms," SFB 649 Discussion Papers SFB649DP2005-002, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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