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The Size of Venture Capital and Private Equity Fund Portfolios

Gennaro Bernile
University of Miami - School of Business Administration; Securities & Exchange Commission - OEA

Douglas Cumming
York University - Schulich School of Business

Evgeny Lyandres
Boston University

April 1, 2006

Simon School Working Paper No. FR 06-11
Journal of Corporate Finance, Vol. 13, pp. 564-590, 2007

Abstract:
We propose a model that examines the optimal size of venture capital and private equity fund portfolios. The relationship between a VC and entrepreneurs is characterized by double-sided moral hazard, which causes the VC to trade off larger portfolios against lower values of portfolio companies. We analyze the structural relations between the VC's optimal portfolio structure and entrepreneurs' and VC's productivities, their disutilities of effort, the value of a successful project, and the required initial investment in a venture. We also test the model's predictions using a small proprietary dataset collected through a survey targeted to VC and private equity funds worldwide.

Working Paper Series

Date posted: November 22, 2006 ; Last revised: October 27, 2008

Suggested Citation

Bernile, Gennaro, Cumming, Douglas J. and Lyandres, Evgeny, The Size of Venture Capital and Private Equity Fund Portfolios (April 1, 2006). Simon School Working Paper No. FR 06-11; Journal of Corporate Finance, Vol. 13, pp. 564-590, 2007. Available at SSRN: http://ssrn.com/abstract=946671

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Contact Information

Evgeny Lyandres (Contact Author) Boston University ( email ) 595 Commonwealth Avenue Boston, MA 02215 United States 617-3582279 (Phone)
Gennaro Bernile University of Miami - School of Business Administration ( email ) P.O. Box 248126 Florida Coral Gables, FL 33124 United States 305-2846690 (Phone)
Securities & Exchange Commission - OEA ( email ) United States Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 United States
Douglas J. Cumming York University - Schulich School of Business ( email ) 4700 Keele Street Toronto, Ontario M3J 1P3 Canada HOME PAGE: http://www.venturecapitalprivateequitycontracting.com/