Abstract

http://ssrn.com/abstract=365881
 
 

References (15)



 
 

Citations (4)



 


 



Risk Model For Venture Capital Funds


Tom Weidig


QuantExperts

November 2002


Abstract:     
Venture capital funds operate in an opaque and illiquid market, where standard risk models are not directly applicable. We here propose a framework for a risk model for venture capital funds and fund-of-funds. In a previous paper, we proposed a consistent framework for performance and liquidity forecasting within the validity of the interim internal rate of return concept. However, its outcomes are not associated to a probability and expected values are without the notion of risk. In the present paper, we explain that knowledge of the level and timing of future cashflow scenarios allow calculating any measure needed to capture the risk profile of a fund. For example, it leads to a probability distribution of internal rate of return and profit/loss that allows computing a probability of default on an internal rate of return target or a value-at-risk. We believe that the most appropriate way to generate these future cashflows is on a fund level and ideally data-driven i.e. based on historical cashflows of comparable funds. We motivate our approach by discussing the different modelling avenues. In this context, we explicitly point out that a venture capital fund is conceptually different to an investment fund with quoted stocks due to the direct influence exercised by the venture capital fund management team on the companies. We also discuss the problems of the implementation of a risk model and the availability of data. We give a concrete example on how to use our framework, even with a dataset of unliquidated funds.

Number of Pages in PDF File: 15

Keywords: venture capital, private equity, risk model, modelling, risk management, pricing, fund, fund-of-fund

working papers series


Download This Paper

Date posted: January 16, 2003  

Suggested Citation

Weidig, Tom, Risk Model For Venture Capital Funds (November 2002). Available at SSRN: http://ssrn.com/abstract=365881 or http://dx.doi.org/10.2139/ssrn.365881

Contact Information

Tom Weidig (Contact Author)
QuantExperts ( email )
9, rue Donven
Esch-Alzette, 4084
Luxembourg
Feedback to SSRN


Paper statistics
Abstract Views: 10,355
Downloads: 3,491
Download Rank: 1,225
References:  15
Citations:  4

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 6.123 seconds