Working Paper: NBER ID: w27690
Authors: Shumiao Ouyang; Jiaheng Yu; Ravi Jagannathan
Abstract: We examine the performance of the Aggregate Portfolio of All Equity Investments (APAEI) in 17,242 ventures with first funding round between 1980 and 2006 by following them till 2018, or their exits if earlier. The Gornall and Strebulaev (2020) upward bias in later-stage pre-money-valuations, while affecting all funding-round-to-exit returns, does not affect APAEI’s performance. APAEI had an internal rate of return of 22%, and a superior Generalized Public Market Equivalent of 1.44. When the best 5% of the ventures are dropped from the APAEI portfolio, the risk adjusted return becomes negative. The APAEI portfolio return declines after 1999.
Keywords: venture capital; performance; investment returns; aggregate portfolio
JEL Codes: G00; G01; G10; G12; G19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upward bias in later-stage pre-money valuations (G24) | measured funding round to exit returns (G24) |
| top 5% of ventures excluded (G24) | risk-adjusted return becomes negative (G17) |
| aggregate portfolio return declines after 1999 (G11) | structural break in venture returns (G24) |
| dot-com bubble and changes in capital supply due to NSMIA (G24) | decline in venture returns (G24) |