Working Paper: NBER ID: w16652
Authors: Andrew Metrick; Ayako Yasuda
Abstract: We review the theory and evidence on venture capital (VC) and other private equity: why professional private equity exists, what private equity managers do with their portfolio companies, what returns they earn, who earns more and why, what determines the design of contracts signed between (i) private equity managers and their portfolio companies and (ii) private equity managers and their investors (limited partners), and how/whether these contractual designs affect outcomes. Findings highlight the importance of private ownership, and information asymmetry and illiquidity associated with it, as a key explanatory factor of what makes private equity different from other asset classes.
Keywords: Venture Capital; Private Equity; Financial Intermediaries; Investment Performance
JEL Codes: G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VC activities (G24) | portfolio performance (G11) |
| contractual arrangements (L14) | agency problems (G34) |
| contractual arrangements (L14) | performance outcomes (L25) |
| agency problems (G34) | occurrence of buyouts (G34) |
| historical performance (N10) | subsequent fund outcomes (G23) |
| information asymmetry (D82) | emergence of VCs (G24) |