Return to Venture Capital in the Aggregate

64 Pages Posted: 17 Aug 2020 Last revised: 18 Nov 2021

See all articles by Shumiao Ouyang

Shumiao Ouyang

Princeton University - Department of Economics and Bendheim Center for Finance

Jiaheng Yu

Massachusetts Institute of Technology (MIT)

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Date Written: August 2020

Abstract

We examine the performance of the Aggregate Portfolio of All Equity Investments (APAEI) in 17,242 ventures with first funding round between 1980 and 2006 by following them till 2018, or their exits if earlier. The Gornall and Strebulaev (2020) upward bias in later-stage pre-money-valuations, while affecting all funding-round-to-exit returns, does not affect APAEI’s performance. APAEI had an internal rate of return of 22%, and a superior Generalized Public Market Equivalent of 1.44. When the best 5% of the ventures are dropped from the APAEI portfolio, the risk adjusted return becomes negative. The APAEI portfolio return declines after 1999.

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Suggested Citation

Ouyang, Shumiao and Yu, Jiaheng and Jagannathan, Ravi, Return to Venture Capital in the Aggregate (August 2020). Available at SSRN: https://ssrn.com/abstract=3675242 or http://dx.doi.org/10.2139/ssrn.3675242

Shumiao Ouyang (Contact Author)

Princeton University - Department of Economics and Bendheim Center for Finance ( email )

Jiaheng Yu

Massachusetts Institute of Technology (MIT) ( email )

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Ravi Jagannathan

Northwestern University - Kellogg School of Management ( email )

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Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

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Indian School of Business (ISB), Hyderabad ( email )

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