The Private Equity Discount: An Empirical Examination of the Exit of Venture Backed Companies

40 Pages Posted: 29 Jan 2002

See all articles by Atulya Sarin

Atulya Sarin

Santa Clara University - Department of Finance

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business

Murali Jagannathan

SUNY at Binghamton - School of Management

Date Written: January 22, 2002

Abstract

Little is known about the risk and return characteristics of private equity investments. In this paper we examine 52,322 financing rounds in 23,208 unique firms, over the period 1980 through 2000 by venture and buyouts funds and estimate the probability of exit, the exit multiples and the expected gains from private equity investments. We find that the gains from venture-backed investments depend upon the industry, the stage of the firm being financed, the financing amount, the valuation at the time of financing, and the prevailing market sentiment. The expected multiple ranges from a low of 1.12 for late-stage firms to a high of 5.12 for firms financed in their early stages. Our study is the first step in understanding the risk premium required for the valuation of private equity investments. It will be of particular interest to the VC community and valuation practitioners.

Keywords: Private Equity Discount

JEL Classification: G12, G24

Suggested Citation

Sarin, Atulya and Das, Sanjiv Ranjan and Jagannathan, Murali, The Private Equity Discount: An Empirical Examination of the Exit of Venture Backed Companies (January 22, 2002). Available at SSRN: https://ssrn.com/abstract=298083 or http://dx.doi.org/10.2139/ssrn.298083

Atulya Sarin

Santa Clara University - Department of Finance ( email )

Leavey School of Business and Administration
Santa Clara, CA 95053
United States
408-554-4953 (Phone)
408-904-4498 (Fax)

HOME PAGE: http://business.scu.edu/asarin

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business ( email )

Department of Finance
316M Lucas Hall
Santa Clara, CA 95053
United States

HOME PAGE: http://srdas.github.io/

Murali Jagannathan (Contact Author)

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States
607-777-4639 (Phone)

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