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Building A Venture Capital Index

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  • Liang Peng

Abstract

This paper builds a venture capital index from 1987 to 1999 that consists of 12,946 rounds of venture financing with 5,643 venture-backed firms. The paper uses two innovative techniques, a re-weighting procedure and a method of moment repeat sales regression, to mitigates three problems - missing data, censored data, and sample selection. We report the time series of capital flows, net asset value, and returns of the venture capital index. We find that the venture capital industry experienced dramatic growth in the sample periods, in terms of capital flows, the number of financing rounds and venture-backed firms, and the net asset value of the index. In addition, the returns to venture capital are high and volatile. The geometric average return is 55.18% per year in the sample periods, with the lowest annual return in 1990 (-5.94%)and the highest in 1999 (681.22%). The venture capital index has much higher volatility than SP 500 and NASDAQ. Moreover, we find significant correlation between the venture capital index and NASDAQ for returns and volatility.

Suggested Citation

  • Liang Peng, 2001. "Building A Venture Capital Index," Yale School of Management Working Papers ysm221, Yale School of Management, revised 01 Oct 2001.
    • Handle: RePEc:ysm:wpaper:ysm221
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    File URL: https://repec.som.yale.edu/icfpub/publications/2532.pdf
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    References listed on IDEAS

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    1. Gompers, Paul & Lerner, Josh, 2000. "Money chasing deals? The impact of fund inflows on private equity valuation," Journal of Financial Economics, Elsevier, vol. 55(2), pages 281-325, February.
    2. Cochrane, John H., 2005. "The risk and return of venture capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 3-52, January.
    3. Liang Peng, 2001. "A New Approach of Valuing Illiquid Asset Portfolios," Yale School of Management Working Papers ysm175, Yale School of Management, revised 01 Aug 2001.
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