Benchmarking the Returns to Venture
AbstractWe describe a new index of the current and historical returns to venture-type capital. The conceptual basis for the index is the value of a continuously reinvested value-weighted portfolio of all venture-backed and similar pre-public companies. It provides a metric for private equity comparable to the S&P 500 for public equity. We build the index from valuations revealed in episodic transactions in the companies' shares - private placements of new rounds of equity funding, IPOs, acquisitions, and liquidations. Our approach to dealing with the episodic nature of the data is similar to the one used in constructing indexes of real-estate value from transaction data for individual properties. We have extended earlier sources of data to deal with selection bias - we tracked down unfavorable valuations that were less likely to be reported in the earlier data. We also use econometric techniques to handle the remaining selection bias. The resulting index has important uses in marking venture portfolios to market and in assessing the performance of venture investments.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10202.
Date of creation: Jan 2004
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Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-01-08 (All new papers)
- NEP-CFN-2004-01-08 (Corporate Finance)
- NEP-HIS-2004-01-08 (Business, Economic & Financial History)
- NEP-RMG-2004-01-08 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Quigley, John M. & Woodward, Susan E., 2003. "An Index for Venture Capital," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt15g2h7g9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- de Zwart, G.J. & Frieser, B. & van Dijk, D.J.C., 2007. "A Recommitment Strategy for Long Term Private Equity Fund Investors," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2007-097-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Alexander Peter Groh & Oliver Gottschalg, 2008. "The Opportunity Cost of Capital of US Buyouts," NBER Working Papers, National Bureau of Economic Research, Inc 14148, National Bureau of Economic Research, Inc.
- Cumming, Douglas & Helge Haß, Lars & Schweizer, Denis, 2013. "Private equity benchmarks and portfolio optimization," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(9), pages 3515-3528.
- McKenzie, Michael & Satchell, Stephen & Wongwachara, Warapong, 2012. "Nonlinearity and smoothing in venture capital performance data," Journal of Empirical Finance, Elsevier, Elsevier, vol. 19(5), pages 782-795.
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