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Building A Venture Capital Index

54 Pages Posted: 30 Aug 2001  

Liang Peng

Smeal College of Business, The Pennsylvania State University

Date Written: August 2001

Abstract

This paper builds a venture capital index from 1987 to 1999 that consists of 12,946 rounds of venture financing with 5,643 venture-backed firms. The paper uses two innovative techniques, a re-weighting procedure and a method of moment repeat sales regression, to mitigates three problems - missing data, censored data, and sample selection. We report the time series of capital flows, net asset value, and returns of the venture capital index. We find that the venture capital industry experienced dramatic growth in the sample periods, in terms of capital flows, the number of financing rounds and venture-backed firms, and the net asset value of the index. In addition, the returns to venture capital are high and volatile. The geometric average return is 55.18% per year in the sample periods, with the lowest annual return in 1990 (-5.94%)and the highest in 1999 (681.22%). The venture capital index has much higher volatility than SP 500 and NASDAQ. Moreover, we find significant correlation between the venture capital index and NASDAQ for returns and volatility.

Keywords: Venture Capital, Index Estimation, Repeat Sales Regression, Re-Weighting

JEL Classification: C43, G24

Suggested Citation

Peng , Liang, Building A Venture Capital Index (August 2001). Yale ICF Working Paper No. 00-51. Available at SSRN: https://ssrn.com/abstract=281804 or http://dx.doi.org/10.2139/ssrn.281804

Liang Peng (Contact Author)

Smeal College of Business, The Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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