Abstract

http://ssrn.com/abstract=307562
 
 

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How Fundamental are Fundamental Values? Valuation Methods and Their Impact on the Performance of German Venture Capitalists


Ingolf Dittmann


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM); European Corporate Governance Institute (ECGI)

Ernst G. Maug


University of Mannheim - Department of Business Administration and Finance; European Corporate Governance Institute (ECGI)

Johannes Kemper


Humboldt University of Berlin

November 15, 2002


Abstract:     
This paper studies how the use of alternative valuation methodologies affects investment performance for a sample of 53 German venture capitalists. We measure investment performance by the amount of investments they need to write off and by the number of companies they take public. We find that a significant number of investment managers use discounted cash flow (DCF) techniques, but only a minority appears to use a discount rate related to the cost of capital. The majority applies DCF using subjective discount rates. We present evidence that the use of DCF is correlated with superior investment performance only if applied in conjunction with an objectifiable discount rate. Also, funds that invest with a longer horizon perform better. The use of multiples is not significantly correlated with investment performance. We conclude that a focus on fundamental values confers an advantage.

Number of Pages in PDF File: 40

Keywords: DCF, Performance, Valuation, Venture Capital, IPO

JEL Classification: G15, G24, G31

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Date posted: July 18, 2002  

Suggested Citation

Dittmann, Ingolf and Maug, Ernst G. and Kemper, Johannes, How Fundamental are Fundamental Values? Valuation Methods and Their Impact on the Performance of German Venture Capitalists (November 15, 2002). Available at SSRN: http://ssrn.com/abstract=307562 or http://dx.doi.org/10.2139/ssrn.307562

Contact Information

Ingolf Dittmann (Contact Author)
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 4081283 (Phone)
+31 10 4089165 (Fax)
HOME PAGE: http://people.few.eur.nl/dittmann/
Tinbergen Institute
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Erasmus Research Institute of Management (ERIM)
P.O. Box 1738
3000 DR Rotterdam
Netherlands
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Ernst G. Maug
University of Mannheim - Department of Business Administration and Finance ( email )
D-68131 Mannheim
Germany
HOME PAGE: http://cf.bwl.uni-mannheim.de
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Johannes Kemper
Humboldt University of Berlin ( email )
Spandauer Str. 1
D-10178 Berlin
Germany
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References:  30
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