Working Paper: NBER ID: w10202
Authors: Susan E. Woodward; Robert E. Hall
Abstract: We 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.
Keywords: No keywords provided
JEL Codes: G24; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Index (Y20) | Performance Evaluation of Venture Capital Portfolios (G11) |
| Index (Y20) | Average Quarterly Returns of Venture Funds (G24) |
| Index (Y20) | Company and Portfolio Valuations (G32) |
| Index (Y20) | Investment Decisions and Outcomes (G11) |
| Index (Y20) | Accuracy of Return Measurements (C52) |